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Stablecoins – effective bridge between fiat and crypto, or a bridge too far?

Stablecoins – effective bridge between fiat and crypto, or a bridge too far?

Posted November 19, 2025 at 10:15 am

FTSE Russell

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This paper assesses Stablecoins’ rapid growth, their stability, and correlation with other assets, and risks to financial stability.

Key takeaways:

  • Stablecoins have grown rapidly since Covid, as a blockchain-based money, with liquidity and cross-border transferability, and as a stable store of value
  • Unlike other crypto currencies, like Bitcoin, they are backed by reserve assets, though the 1:1 peg to underlying reserve assets has some flexibility, like a currency board
  • Using FTSE Russell data, we find Stablecoins show a very stable return profile and low volatility versus other cryptocurrencies and financial assets, since 2020
  • Stablecoins backed by fiat currency cash and near-cash display lower volatility than those collateralised by crypto currencies, and low correlation to Bitcoin and Ethereum

Points of differentiation:

  • We embed the analysis of Stablecoins in the context of broader correlations of returns across multi-asset classes
  • Our empirical research also finds that Stablecoin growth is correlated with US M2 growth and broader monetary conditions
  • The paper also assesses the difference in approach to Stablecoins in Europe and the US, and how Stablecoins may affect financial stability and the dollar’s role as the primary reserve currency

What does our research mean for investors?

For investors, our empirical work confirms the stability of Stablecoins, with the exception of Terra’s collapse in 2022. The paper is a sequel to the February 2025 FTSE Russell paper, Digital assets – evolution and correlations with other asset classes, and helps inform investor decisions by explaining Stablecoin risks and opportunities, and their differences with other cryptocurrencies.

Originally Posted November 5, 2025 – Stablecoins – effective bridge between fiat and crypto, or a bridge too far?

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Interactive Advisorsa division of Interactive Brokers Group, offers FTSE Russell Index Tracker portfolios on its online investing marketplace. Learn more about the Diversified Portfolios.

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Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

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Disclosure: Digital Assets

Trading in digital assets, including cryptocurrencies, is especially risky and is only for individuals with a high risk tolerance and the financial ability to sustain losses. Eligibility to trade in digital asset products may vary based on jurisdiction.

Disclosure: Stablecoins and Tokenized assets

Stablecoins and Tokenized assets are not legal tender, are not insured by the FDIC or any government agency, and may lose value; they carry risks including issuer insolvency, regulatory changes, operational failures, and potential inability to redeem for fiat currency. By transacting in stablecoins, you acknowledge and accept these risks.

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