From Par to Pressure: Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin

IMF Working Papers, January 16, 2026

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Canonical URL: From Par to Pressure: Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin

Authors: Marco Gross, Richard Senner
Date: January 16, 2026
Core finding: Fiat-backed stablecoins are expanding, and their issuers may attain systemic relevance as reserve portfolios grow and as they become increasingly intertwined with financial markets.
Central claim: Robust prudential design can substantially stabilize stablecoins and their surrounding market environment.
Abstracted mechanism: Redemptions deplete reserves, may prompt asset sales, depress bond market prices, thereby erode a stablecoin issuer’s solvency, and in turn amplify further redemptions.

Model scope: Captures the feedback loop between a systemic stablecoin and financial markets.
Key dynamics described:
- Redemptions → reserve depletion.
- Reserve depletion → potential asset sales.
- Asset sales → depressed bond market prices.
- Depressed bond market prices → erosion of issuer solvency.
- Eroded solvency → amplification of further redemptions.

Design levers examined: capital and liquidity buffers, reserve composition, redemption gates, and others.
Outcomes linked to design choices:
- Run frequency.
- Fire sale intensity.
- Bond market volatility.
Conclusion from model and economics discussion: Design choices materially affect the frequency and severity of runs, the intensity of fire sales, and volatility in bond markets.

Emphasized approach: Prudential design tailored to systemic stablecoins.
Recommended design elements (as analyzed in the paper):
- Capital buffers.
- Liquidity buffers.
- Reserve composition adjustments.
- Redemption gates and related mechanisms.
Intended effect of recommendations: To substantially stabilize stablecoins and their surrounding market environment by breaking or mitigating the feedback loop between redemptions and market distress.

Subject areas: Asset and liability management, Asset liquidity, Bonds, Financial institutions, Financial markets, Liquidity, Securities markets.
Keywords: Asset liquidity, bond market volatility, Bonds, economics discussion, fire sale intensity, Global, global financial stability, IMF working papers, Liquidity, redemption gate, Securities markets, sovereign-stablecoin nexus, Stablecoins, systemic liquidity.