The European Central Bank (ECB) has issued a stark warning about the growing influence of stablecoins, highlighting their potential to disrupt the financial stability of the euro zone. Stablecoins, digital assets designed to maintain a stable value, have surged in popularity, with their market value now exceeding $280 billion. While this figure remains relatively modest, the ECB emphasized that issuers of these coins have become significant buyers of U.S. Treasuries, raising concerns about their broader impact on global financial markets. In a recent Financial Stability Review article, the ECB noted that stablecoins are primarily used for trading crypto assets, accounting for approximately 80% of all transactions on centralized crypto trading platforms. The central bank warned that the rapid expansion of stablecoins could lead to significant outflows of retail deposits from euro zone banks, undermining a crucial funding source and increasing overall funding volatility. The ECB also highlighted the risk of investor runs on stablecoins, particularly given that the two largest stablecoins are among the top holders of U.S. Treasury bills. A sudden sell-off of these reserve assets could destabilize U.S. Treasury markets, with potential ripple effects on the euro zone. Additionally, the ECB cautioned that joint issuance of stablecoins by EU and non-EU entities could exacerbate redemption risks, as EU regulations are stricter and investors may prefer EU-issued tokens. This could leave EU issuers with insufficient reserve assets to meet combined redemption demands, amplifying financial instability within the region.