New York Fed finds stablecoins flow to countries facing financial crises

Wallets in crisis nations receive more stablecoins

A study from the New York Federal Reserve found that wallets linked to countries facing financial turmoil are more likely to receive dollar-pegged stablecoins when a crisis begins. Stablecoins are cryptocurrencies designed to keep a steady value by being tied to a real-world asset like the US dollar.

Researchers Pablo Azar, Maryam Farboodi, and Nish Sinha found that during the week a crisis started, these wallets were 1.8% more likely to receive stablecoins. The total amount of stablecoins received also rose significantly during those periods.

This trend suggests that when confidence in local banks or currencies drops, households and businesses turn to blockchain-based dollars as an alternative. A blockchain is a digital record-keeping system that tracks transactions across many computers.

Key findings from the research

• Wallets tied to crisis countries saw a 1.9% higher chance of receiving stablecoins during the crisis week.
• There was no significant increase in stablecoin receipts in the two weeks before the crisis began.
• Wallets became 1.3% more likely to send stablecoins two weeks after a crisis started.
• The study covered nine financial episodes across eight countries between 2021 and 2025.

What the NY Fed paper says

The research examined monetary disruptions, banking restrictions, sanctions, and currency devaluations in Argentina, Egypt, Iran, Myanmar, Nigeria, Russia, Turkey, and the United Kingdom. The team linked Ethereum Name Service registrations, which carry country signals like language and national identifiers, with transfer histories for 19 major dollar-pegged stablecoins.

The study notes that governments have traditionally used banks and regulated intermediaries to enforce limits on foreign-exchange purchases and cross-border money transfers. However, stablecoins now offer a path to hold dollars that operates outside these domestic banking channels.

The researchers model this as a weakening of the government's ability to control capital movement. When restrictions tighten, pressure may emerge through currency depreciation or higher domestic interest rates instead.

Growth and enforcement limits

The stablecoin market has grown past $300 billion and is projected to reach trillions of dollars by the end of the decade. Blockchain analysis firm Chainalysis estimates adjusted transaction volume could hit $719 trillion by 2035 through organic growth alone.

Despite this expansion, governments still have enforcement points. Major stablecoin issuers like Tether and Circle are centralized companies that can freeze specific wallet addresses. Regulated exchanges can also be required to restrict transactions or verify customer identities.

However, enforcement becomes less uniform once tokens move between private, self-custodied wallets. Federal Reserve Vice Chair for Supervision Michael Barr warned in June that US stablecoin legislation leaves a vulnerability around secondary-market transfers involving unhosted wallets. The Bank for International Settlements has similarly noted that stablecoin dollarization can threaten monetary sovereignty.

Why this matters for monetary policy

The findings highlight a growing challenge for central banks in economies under stress. As stablecoin networks expand, the ability of households to access alternative payment rails grows alongside it. This creates a more fragmented map for enforcement, where authorities retain control over banks and issuers but may have less visibility when dollars move through private wallets.

The New York Fed paper suggests this choice of financial infrastructure is becoming part of the broader macroeconomic constraint. At projected scales, stablecoins could turn from a niche payment mechanism into a material factor in how governments defend their currencies during financial stress.

What is confirmed

The study confirms a correlation between the start of financial crises and increased stablecoin receipt activity in linked wallets. It does not establish that stablecoins caused specific currencies to weaken during the observed episodes. The behavior supports the theoretical model that financial stress encourages stablecoin adoption, but the broader monetary policy consequences remain theoretical.

What is still unclear

The dataset covers roughly 4.5 million wallet-event-week records and focuses on wallets that already received stablecoins. It does not represent every resident or crypto wallet in the studied countries. Therefore, the results capture a change in behavior among existing users rather than showing a nationwide 1.8% rise in adoption.

Sources

• CryptoSlate