How Stablecoins Fail: The Failure Stack (2026 to 2028)
Stablecoins break when liquidity, custody, or regulation snaps—not when reserves vanish. Here’s the failure stack.
Ronnie Huss
January 24, 2026
Stablecoins break when liquidity, custody, or regulation snaps—not when reserves vanish. Here’s the failure stack.
The GENIUS Act turns stablecoins into regulated banking rails: issuer licensing, reserves, redemption, enforcement.
Stablecoins are often framed as blockchain infrastructure or “internet money.” In reality, they are financial balance sheets wrapped in software. Their durability depends on reserves, custody, liquidity management, enforceable redemption, and regulatory compliance, not chain throughput or smart contract design.
On-chain reserves are visible via blockchain data, while off-chain reserves rely on traditional custody and attestations.
A depegging event occurs when a stablecoin trades away from its intended reference value.
Proof of reserves is a method of demonstrating that assets exist at a specific point in time.
Yield-bearing stablecoins aren’t magic—they’re risk packaging. Here’s where yield comes from and what can break.
Fiat-backed stablecoins rely on off-chain assets, while crypto-backed stablecoins use on-chain collateral.
The UK and EU regulate stablecoins with similar objectives but different enforcement philosophies.
UK regulators assess stablecoins based on economic function, not technological design.