The IMF's Stablecoin Framework: Balancing Stability and Growth

In April 2026, the IMF published “Making Stablecoins Stable” (WP/26/74), a working paper that formalizes the central tension in stablecoin regulation: stricter reserve requirements and equity buffers make stablecoins more resilient to runs, but they also reduce issuer profitability, potentially discouraging issuance altogether. With stablecoin supply surpassing $300 billion by early 2026, the question of how to regulate without killing the market has become one of the most consequential in digital finance.

The paper, authored by Bo Li, Tommaso Mancini-Griffoli, Marcello Miccoli, Brandon Tan, and Longmei Zhang, builds on the Diamond and Dybvig (1983) bank-run model to show that an unregulated private equilibrium is suboptimal: issuers chase risky assets to maximize profits, which raises run risk. The framework then evaluates three policy levers for reducing that risk, each with its own cost to issuance growth. This article breaks down the model, maps the levers to their tradeoffs, and compares the IMF’s approach to the US GENIUS Act and EU MiCA regimes already in force.

Why Stablecoins Are Vulnerable to Runs

The IMF paper starts from a simple observation: fiat-backed stablecoins promise par redemption but invest reserves in assets that can lose value. This maturity and liquidity mismatch creates a classic run dynamic. If holders suspect the reserve is impaired, rational behavior is to redeem early, before the pool is depleted. The result mirrors a bank run, except stablecoin issuers typically lack two features that stabilize banks: deposit insurance and central bank lender-of-last-resort facilities.

The paper models issuers as choosing a portfolio of safe assets (like Treasury bills) and risky assets (like corporate bonds or longer-duration securities). Higher allocations to risky assets raise the expected return for issuers but also increase the probability that a negative shock causes the reserve to fall below par. When the reserve dips below the outstanding stablecoin supply, a depeg event becomes self-reinforcing: early redeemers get their dollar back, late redeemers do not.

The core finding: In the absence of regulation, issuers rationally over-allocate to risky assets because they capture the upside (higher yields) while holders bear the downside (run risk). This is the market failure that regulation aims to correct.

Three Policy Levers

The paper evaluates three distinct tools that regulators can use to reduce stablecoin run risk. Each addresses the problem at a different layer: asset quality, issuer capitalization, or redemption mechanics.

Lever 1: Safer Asset Backing

The most direct intervention is to mandate that reserves consist exclusively of safe, liquid assets: short-dated government securities, central bank deposits, or cash equivalents. If reserves cannot lose value, there is no run trigger. The paper treats this as the first-best solution when feasible.

The tradeoff is straightforward. Safe assets yield less than risky ones. In the paper’s model, mandating 100% safe reserves narrows the spread between what issuers earn on reserves and what they pay in operational costs. When interest rates are high enough, the spread remains positive and issuance is sustainable. When rates fall, the margin can turn negative, making issuance unprofitable. The paper notes that backing with central bank reserves can be optimal when the policy rate is sufficiently high, but this option is not universally available to non-bank issuers.

Lever 2: Loss-Absorbing Equity

If reserves include any assets that can lose value, issuers need a buffer to absorb losses before they impair redemptions. The paper models this as an equity requirement: issuers must hold capital in excess of their outstanding stablecoin liabilities. This equity absorbs mark-to-market losses on reserve assets, preventing small shocks from triggering runs.

The cost is capital itself. Equity has an opportunity cost: the return shareholders demand for locking up funds in a stablecoin issuer rather than deploying them elsewhere. Higher equity requirements raise the hurdle rate for entering the issuance business and can squeeze the profitability of smaller issuers disproportionately. The paper frames this as a necessary second line of defense when safe-asset mandates cannot fully eliminate reserve risk.

Lever 3: Redemption Gates and Backstops

The third lever addresses the demand side of runs. Redemption gates allow issuers to temporarily limit or delay withdrawals during periods of stress, giving markets time to absorb asset sales and preventing fire-sale spirals. Public backstops, such as central bank liquidity facilities, serve a similar function by guaranteeing that issuers can meet redemptions without dumping assets at distressed prices.

A companion IMF working paper, “From Par to Pressure” (WP/26/005), models the feedback loop between redemptions and fire sales in detail. It finds that capital buffers (excess assets) are the most potent tool for reducing both the likelihood and severity of instability. Cash reserves primarily reduce the need for bond sales during redemptions. Redemption gates reshape the temporal profile of outflows, buying time for orderly liquidation rather than preventing losses outright.

Gates carry a significant cost: they undermine the core value proposition of stablecoins as money-like instruments with instant redemption. If holders cannot redeem freely, the stablecoin’s utility as a payment instrument and store of value declines. The money market fund industry learned this lesson when the SEC rolled back redemption gates in 2023 after finding that their mere existence triggered preemptive runs.

Policy Lever Tradeoff Map

The following table summarizes how each lever affects stability and issuance incentives.

Key insight: The paper argues that no single lever is sufficient. Safe-asset mandates are the strongest first line, but they need equity buffers as a second line and potentially backstops as a third. The optimal combination depends on the interest-rate environment and the systemic importance of the issuer.

Systemic vs Non-Systemic Issuers

The IMF framework implicitly distinguishes between systemically important stablecoins and smaller issuers, though it stops short of proposing a formal designation mechanism. The companion paper “From Par to Pressure” models a “systemic stablecoin” whose reserve portfolio is large enough to move bond markets when liquidated. For these issuers, the feedback loop between redemptions and fire sales creates contagion risk: a run on the stablecoin depresses bond prices, which impairs other institutions holding similar assets.

This distinction matters for calibrating the policy levers. A small issuer with $50 million in circulation can be allowed to hold a modest equity buffer because its failure would not cascade. A $100 billion issuer like Tether or Circle needs more stringent requirements because its reserve liquidation could disrupt Treasury markets.

The CPMI/IOSCO guidance on systemically important stablecoin arrangements takes this further, proposing that arrangements meeting certain size and substitutability thresholds should be subject to the Principles for Financial Market Infrastructures (PFMI): the same standards that govern payment systems and central counterparties.

How Existing Regulations Compare

The IMF paper provides a theoretical framework, but two major regulatory regimes are already imposing real constraints on issuers. Understanding how the US GENIUS Act and EU MiCA map to the IMF’s levers reveals where current policy falls and where gaps remain.

The US GENIUS Act

Signed into law in July 2025, the GENIUS Act (P.L. 119-27) establishes a federal framework for permitted payment stablecoins. Its reserve rules align closely with the IMF’s first lever: issuers must maintain 1:1 reserves in approved liquid assets, including cash, insured deposits, short-dated Treasury bills, certain repurchase agreements, and government money market fund shares. Rehypothecation of reserves is prohibited except in narrow circumstances.

On the equity lever, the Act delegates capital requirements to federal regulators. The OCC’s proposed rule (April 2026) introduces a risk-based approach with a $5 million capital floor during an initial three-year period, with most issuers expected to hold between $6 million and $25 million. The Conference of State Bank Supervisors (CSBS) has criticized this as insufficiently tied to issuance volume, recommending instead a reserve-based metric of roughly 0.5% of assets for the largest issuers.

The GENIUS Act does not include redemption gates or public backstops. Instead, it relies on the combination of safe-asset mandates and capital requirements to prevent runs. Failing capital requirements for two consecutive quarters triggers mandatory liquidation and redemption of all outstanding stablecoins.

EU MiCA

The EU’s Markets in Crypto-Assets Regulation (MiCA) distinguishes between e-money tokens (EMTs, pegged to a single fiat currency) and asset-referenced tokens (ARTs, backed by baskets of assets). Both categories face segregated, fully backed reserve requirements, but the calibration differs.

MiCA also introduces a “significance” regime that directly mirrors the IMF’s concern about systemic issuers. Stablecoins that cross adoption thresholds (measured by holder count, market capitalization, transaction volume, and other indicators) face heightened requirements. Significant EMT issuers must hold at least 60% of reserves as cash deposits at credit institutions, compared to 30% for non-significant issuers. Capital requirements for significant tokens rise to approximately 3% of average reserve assets.

Framework Comparison

The Profitability Squeeze

The practical impact of these frameworks depends on the interest-rate environment. Stablecoin issuers earn revenue primarily from the yield on reserve assets. At higher rates, a portfolio of short-dated T-bills generates enough income to cover operational costs, compliance overhead, and shareholder returns even under strict reserve mandates. The issuer economics remain attractive.

At lower rates, the math changes. If reserves must consist entirely of safe assets and the issuer must hold 2-3% additional equity capital, the net margin can approach zero or turn negative. The IMF paper notes that this creates a procyclical dynamic: stablecoin supply could contract exactly when demand for dollar-denominated digital assets is highest (in low-rate, risk-off environments), because issuers exit the market.

The yield prohibition debate in the US adds another layer. The GENIUS Act prohibits issuers from paying yield directly to holders, which means the entire spread accrues to the issuer. This preserves issuer margins but raises questions about whether stablecoins can compete with money market funds and tokenized deposits that do pass through yield.

Issuer Responses

Issuers are adapting to the tighter regulatory environment in several ways:

• Diversifying revenue beyond reserve yield through transaction fees, platform services, and enterprise API access
• Seeking banking charters or partnerships that grant access to central bank reserves and the Federal Reserve’s payment systems
• Operating under multiple jurisdictions to optimize regulatory costs (issuing under GENIUS Act for US markets and MiCA for European markets)
• Partnering with regulated infrastructure providers to share compliance costs rather than building everything in-house

Implications for Stablecoin Infrastructure

The IMF’s framework has direct consequences for how stablecoins are issued, distributed, and used across payment networks. If the regulatory equilibrium settles on strict safe-asset mandates with meaningful equity buffers, the issuance market will likely consolidate around well-capitalized, regulated entities. Smaller issuers without access to cheap capital or banking relationships will face higher barriers to entry.

This consolidation pressure makes the choice of stablecoin issuer more consequential for platforms and protocols that integrate dollar- denominated payments. An issuer’s reserve composition, capital position, and regulatory status directly affect the depeg risk that downstream users bear.

Brale, the issuer of USDB, operates under US regulatory oversight and maintains reserves in cash and short-dated government securities: precisely the asset mix that the IMF framework identifies as optimal for minimizing run risk. USDB is available on Spark, where it enables dollar-denominated payments with Bitcoin-native settlement. For platforms building on Spark, the regulatory compliance of the underlying stablecoin issuer is not an abstraction: it determines how the stablecoin trilemma (stability, capital efficiency, and decentralization) plays out in practice.

What the Framework Gets Right and Where It Falls Short

Strengths

The paper’s formal model provides a rigorous basis for calibrating reserve and capital requirements. By grounding the analysis in Diamond and Dybvig, it connects stablecoin regulation to decades of banking theory and makes the tradeoffs explicit. The three-lever framework is also practically useful: regulators can evaluate any proposal by identifying which levers it pulls and what it leaves exposed.

The explicit treatment of the stability-issuance tradeoff is the paper’s most important contribution. Previous regulatory frameworks (including early drafts of the GENIUS Act) focused almost exclusively on stability without modeling the supply-side effects. The IMF paper shows that over-regulating stablecoins could push dollar-denominated digital transactions to unregulated alternatives or algorithmic stablecoins that bypass reserve requirements entirely.

Limitations

The model assumes a single representative issuer and does not account for competitive dynamics between multiple issuers or across jurisdictions. In practice, the competitive landscape means that over-regulation in one jurisdiction can drive issuance to another rather than reducing overall supply.

The paper also does not address the interaction between stablecoin regulation and CBDCs. If central banks issue their own digital currencies, the competitive dynamics shift again: stablecoin issuers would compete not only with each other but with sovereign money that carries zero credit risk by definition.

Finally, the framework treats all stablecoins as single-currency, fiat-backed instruments. It does not cover non-dollar stablecoins, multi-currency baskets, or yield-bearing designs that have different risk profiles and regulatory implications.

What Comes Next

The IMF working paper is staff research, not official Fund policy. But IMF staff papers often signal the direction of multilateral standard- setting, and the paper’s analytical framework is already being cited in CPMI/IOSCO and FSB discussions about global stablecoin standards.

Three developments to watch:

• The finalization of OCC and FDIC capital rules under the GENIUS Act, which will set the first concrete US equity requirements for stablecoin issuers
• The evolution of MiCA’s significance regime as stablecoins cross adoption thresholds in Europe
• Whether the FSB adopts the IMF’s three-lever framework as a baseline for its own high-level recommendations on global stablecoin regulation

For developers building on stablecoin infrastructure, the practical takeaway is to choose issuers whose reserve and capital practices can withstand the tighter requirements that are coming. Platforms like Spark that integrate regulated stablecoins benefit from the stability that compliance provides, without bearing the direct cost of maintaining reserves and capital buffers themselves. To explore how stablecoin payments work on Spark, see the Spark developer documentation and the global stablecoin regulation tracker.

This article is for educational purposes only. It does not constitute financial or investment advice. Bitcoin and Layer 2 protocols involve technical and financial risk. Always do your own research and understand the tradeoffs before using any protocol.