The Financial Stability Board warns that crypto is nearing a tipping point as its connections to traditional finance deepen, raising concerns over global risk.
Stablecoins and exchange-traded funds (ETFs) are speeding up cryptocurrency integration into traditional finance, according to departing FSB Chair Klaas Knot, which raises concerns about systemic risk.
The Financial Stability Board (FSB) is warning that the crypto industry poses an increasing threat and that its connections to traditional banking are getting close to a breaking point.
While cryptocurrency does not yet represent a systemic risk to traditional finance, that status may not endure for long, according to departing FSB Chair Klaas Knot, who made this statement Thursday in Madrid. He suggested that we might be at a turning point.
With the advent of cryptocurrency exchange-traded funds, Knot observed that entrance barriers for regular investors have “dropped significantly.” Crypto ETFs give investors access to digital assets without requiring them to use crypto wallets, manage private keys, or navigate exchanges.
“The stablecoin market is another area of concern,” Knot continued. He pointed out that issuers now own substantial quantities of US Treasurys, strengthening the connections between traditional finance and cryptocurrency. “We need to keep a close eye on that segment,” he continued.
Financial systems contain stablecoins.
Digital assets known as stablecoins, which are based on fiat currencies like the US dollar, are finding their way into financial institutions more and more. The entire market value of stablecoins is around $251 billion, using DefiLlama data.
Stablecoins’ increasing influence on traditional finance was examined in a recent study by the Bank for International Settlements, which concentrated on how they affected short-term US Treasury yields.
Stablecoin inflows reduce three-month Treasury yields by 2 to 2.5 basis points within 10 days, while outflows increase yields by 6 to 8 basis points, according to the study, which used daily data from 2021 to 2025 and an instrumental variable approach.
These impacts have less effect on longer-term bonds and are focused on short-term maturities. The implications of stablecoins on Treasury markets are confirmed by the fact that USDt USDT$1.00 has the most significant effect among issuers, followed by Circle’s USDC USDC$0.9997.
On June 30, Knot, who also holds the position of president of the Dutch central bank, De Nederlandsche Bank, will relinquish both positions. He will be succeeded at the FSB by Andrew Bailey, the governor of the Bank of England, while the Netherlands has not yet named a successor.
The US Senate advances the GENIUS Act.
A primary stablecoin measure that aims to provide legislative certainty for digital assets backed by dollars, the Guiding and Establishing National Innovation for US Stablecoins, or GENIUS Act, was advanced by the US Senate on Wednesday by a vote of 68 to 30. Before the bill is forwarded to the House of Representatives, the vote sets the stage for a final vote and floor discussion.
If approved, the measure will establish a national stablecoin issuing framework, increasing the competitiveness of the US digital asset market internationally.
