Misinformation is everywhere – and the crypto space seems to attract more than its fair share.
While some stablecoin reports call them “crypto’s killer use case,” others may leave you with the impression that these digital dollars are a kind of slow-motion financial grenade, just waiting to explode under the right combination of market manipulation and tech bro arrogance.
They’re described as unstable, uninsured, easily weaponized by rogue states, and somehow simultaneously a threat to global finance and a frivolous crypto fad. It’s an impressive range of imagined disasters for something designed to be… stable.
But here’s the thing: most of the fears don’t really apply to how leading stablecoins actually work.
The industry learned its lessons from TerraUSD and other speculative blow-ups. Today’s major payment stablecoins are fully backed by high-quality liquid assets—mostly U.S. Treasury bills and cash—held in transparent, audited reserves. They don’t typically offer yields. And most are not driven by algorithms.
Some may even call them boring? And that’s a good thing.
Stablecoins are essentially digital wrappers for dollars, designed to move money faster, cheaper, and with more transparency than the existing banking system.
That’s not to say there’s no need for regulation—of course there is. But the current debate is shaped less by facts and more by outdated narratives, selective anecdotes, and a reflexive suspicion of anything that touches crypto. This post aims to clear that up.
We’ll unpack the most common misconceptions about stablecoin security—like the idea that they’re susceptible to a “bank-run” or are a haven for bad actors. We’ll explain why none of that is true. Not because the industry is perfect, but because smart regulation should start with reality, not fear.
Let’s start with the biggest myth of all: that stablecoins are just one bank failure away from bringing down the global economy.
Misconception 1: Stablecoins Are Inherently Run-Prone
This argument—made repeatedly by policymakers over the years—equates fully reserved stablecoins like USDC with the collapse of TerraUSD, a notoriously unbacked algorithmic coin. Never mind that one was backed by code, and the other by actual U.S. dollars and short-term Treasuries.
Some will point to a brief time in mid-2023 when USDC lost its dollar peg after the Silicon Valley Bank collapsed and $3.3B of Circle’s reserves were momentarily inaccessible. But users were never locked out of redemptions, and the peg recovered within days—because the underlying collateral was sound. Circle has since diversified its banking partners and moved the majority of reserves to BlackRock-managed Treasury portfolios.
A proper stablecoin isn't fractional reserve banking—it’s more like a money market fund with a blockchain interface. If it's fully backed and liquid, there’s simply no mechanism for the kind of cascading insolvency policymakers imagine.
Misconception 2: Stablecoins Aren’t Truly Backed
Another favorite talking point is that stablecoins are just “digital tokens” with no real backing. That might have been true of sketchy projects in the early crypto days, but today’s leading stablecoin issuers publish monthly attestations of reserves from top-tier accounting firms. They take regulation and consumer confidence seriously. USDC and Paxos’ USDP, for example, are backed 1:1 with cash and Treasury bills—meaning every token is redeemable, on demand, for a US dollar.
They’re not FDIC-insured, but that’s by design. These are not deposit accounts. They don’t lend your money out or expose it to credit risk. In fact, because they hold reserves in segregated custodial accounts, stablecoins might be less risky than a regional bank during a crisis—there’s no balance sheet to get upside-down.
If you’re going to regulate stablecoin reserves (and you should), it makes more sense to treat them like payments infrastructure, not banks. Which is exactly what the proposed Clarity for Payment Stablecoins Act tries to do: require 1:1 reserves, redeemability, and transparency, without overcomplicating things.
Misconception 3: Stablecoins Are a Haven for Illicit Finance
There’s a persistent narrative that stablecoins are the new go-to for criminals, rogue states, and terrorist financiers. And while stablecoins have appeared in investigations (just like cash and wires and gold and real estate), the data paints a very different picture.
According to Chainalysis’s 2024 Crypto Crime Report, illicit activity accounted for just 0.34% of all crypto transaction volume—down further from previous years. And even within that sliver, stablecoins are often easier to trace than traditional methods. Unlike suitcase cash or shell corporations, stablecoins leave a digital trail thanks to an immutable ledger – the blockchain itself.
Issuers like Circle and Tether have routinely frozen suspicious addresses, cooperating with law enforcement faster than traditional banks ever could.
Characterizing stablecoins as uniquely dangerous misses the real issue: bad actors will use any system they can, and the transparency of blockchains often makes it easier—not harder—to catch them.
The More They're Used, the Safer They Become
One of the great ironies in the stablecoin safety debate is that broader adoption doesn’t increase the risk—it reduces it.
As stablecoins become more widely used by enterprises, institutions, and global businesses, their infrastructure becomes more battle-tested. Their economic incentives align more with long-term stability. Their issuers come under greater scrutiny. And the network effects kick in: every additional legitimate user makes the ecosystem safer, not shakier.
But the biggest bottleneck to this next phase of growth isn’t technical—it’s operational. Specifically, it’s accounting and finance teams.
Even as product and treasury leaders push to adopt faster, cheaper payments using stablecoins, many enterprise finance teams are stuck without the tools to handle on-chain transactions. Spreadsheets don’t cut it when you’re reconciling wallets across multiple chains. Tax and compliance workflows break down. Audits become a headache.
That’s why the next leap forward in stablecoin adoption—and security—depends on better enterprise infrastructure.
The Smarter Way to Move Money On-Chain
Bitwave offers the most complete enterprise solution for companies ready to integrate stablecoins into their financial stack. From automated reconciliation and tax tracking to multi-chain support and seamless wallet integrations, Bitwave gives AP (and AR) teams everything they need to adopt on-chain payments without sacrificing compliance, auditability, or control.
In other words: if you're going to touch stablecoins, do it right. Bitwave is how.
FAQs About Stablecoin Security
Are stablecoins really backed?
Today’s leading stablecoin issuers publish monthly attestations of reserves from top-tier accounting firms. They take regulation and consumer confidence seriously. USDC and Paxos’ USDP, for example, are backed 1:1 with cash and Treasury bills—meaning every token is redeemable, on demand, for a US dollar.
They’re not FDIC-insured, but that’s by design. These are not deposit accounts. They don’t lend your money out or expose it to credit risk. In fact, because they hold reserves in segregated custodial accounts, stablecoins might be less risky than a regional bank during a crisis—there’s no balance sheet to get upside-down.
Are stablecoins only used for illegal activity?
While stablecoins have appeared in investigations (just like cash and wires and gold and real estate), the data paints a very different picture.
According to Chainalysis’s 2024 Crypto Crime Report, illicit activity accounted for just 0.34% of all crypto transaction volume—down further from previous years. And even within that sliver, stablecoins are often easier to trace than traditional methods. Unlike suitcase cash or shell corporations, stablecoins leave a digital trail thanks to an immutable ledger – the blockchain itself.
Issuers like Circle and Tether have routinely frozen suspicious addresses, cooperating with law enforcement faster than traditional banks ever could.
Characterizing stablecoins as uniquely dangerous misses the real issue: bad actors will use any system they can, and the transparency of blockchains often makes it easier—not harder—to catch them.
Are stablecoins safe for business payments?
One of the great ironies in the stablecoin safety debate is that broader adoption doesn’t increase the risk—it reduces it.
As stablecoins become more widely used by enterprises, institutions, and global businesses, their infrastructure becomes more battle-tested. Their economic incentives align more with long-term stability. Their issuers come under greater scrutiny. And the network effects kick in: every additional legitimate user makes the ecosystem safer, not shakier.
But the biggest bottleneck to this next phase of growth isn’t technical—it’s operational. Specifically, it’s accounting and finance teams.
Even as product and treasury leaders push to adopt faster, cheaper payments using stablecoins, many enterprise finance teams are stuck without the tools to handle on-chain transactions. Spreadsheets don’t cut it when you’re reconciling wallets across multiple chains. Tax and compliance workflows break down. Audits become a headache.
That’s why the next leap forward in stablecoin adoption—and security—depends on better enterprise infrastructure.
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.
