“Stablecoins: Adoption and Fragility” (Sveriges Riksbank Working Paper No. 423; This version: 10/2025)

• Abstract: This paper presents a two-period model of stablecoin runs with endogenous consumer adoption and seller acceptance decisions. Two mechanisms justify regulatory concern about excessive stablecoin adoption: (i) a run externality, whereby broader adoption increases the flightiness of marginal stablecoin holders, raising run risk; and (ii) uninternalized network effects, which erode the transaction value of bank deposits. By endogenizing the liability structure of the stablecoin issuer and linking adoption dynamics to issuer fragility , the model yields novel testable implications. Stabilizing forces–such as conversion frictions, congestion effects, issuer revenues, and seigniorage–are shown to mitigate fragility. The model also provides theoretical foundations for regulatory interventions such as disclosure requirements and reserve oversight, while showing that capital regulation may be warranted to address moral hazard. More broadly, the paper highlights how fragility can emerge endogenously from shifts in the composition of creditors–a mechanism relevant for other financial institutions vulnerable to runs. (D83, E4, G01, G28)

Keywords: Money, payment preferences, financial stability, financial regulation.