How Stablecoins Could Destabilise Southeast Asian Economies

Earlier this month in Singapore, a record 25,000 attended Token2049, the world’s largest crypto conference. A key theme was that crypto — particularly through stablecoins — is going mainstream as evidenced by the recent “historic” US stablecoin bill. Stablecoins (cryptocurrencies pegged 1:1 to fiat currency) are hailed as crypto’s “killer app,” drastically lowering the time and cost of global payments. For crypto evangelists like former BitMEX CEO Arthur Hayes, their potential is far greater. At Token2049, he asserted that stablecoins are not merely “plumbing,” rather, “[t]hey are the Trojan horse that could reshape global finance.”

If stablecoins are crypto’s Trojan horse, we must ask: For all the good they promise, might they harm Southeast Asian economies? Stablecoin adoption is the highest in emerging markets, given their attractiveness for remittances and as a store of value. The Philippines offers a stark example: US dollar stablecoins consistently make up the majority of trading volume on Coins.ph, the nation’s largest crypto exchange. In Thailand, stablecoin purchase rates rank second highest in the world.

A primary risk from stablecoins is their outsized use in illicit finance. According to Chainalysis, a prominent blockchain analytics firm, stablecoins account for 63 per cent of illicit crypto transactions. Their price stability makes them the cryptocurrency of choice for scammers. Since they are transacted on blockchains, stablecoins can often bypass conventional anti-money laundering controls. For example, under the Financial Action Task Force (FATF) Travel Rule, a financial institution sending funds across borders must report sender and receiver details to the receiving institution. However, the Travel Rule breaks down when individuals transact using self-hosted blockchain accounts, bypassing financial institutions.

Illicit activity from stablecoin flows can also bring exchange rate instability. In Thailand it is reported that laundered crypto, used to purchase real assets such as gold and real estate, has caused balance of payments irregularities totalling over 500 billion Baht (US$15.25 billion). This has contributed to the Baht appreciating 7 per cent since January 2025, thus negatively impacting Thailand’s export and tourism markets.

Combating illicit crypto flows is challenging but not impossible. FATF’s standards provide a baseline, but they need to be supplemented in response to crypto’s ever-evolving landscape. Additional sensible regulations include: (1) enforcing a list of sanctioned crypto addresses so that registered crypto exchanges consistently flag and freeze transactions to and from known illicit sources, and (2) only allowing exchanges to trade stablecoins that can be frozen on the blockchain subject to law enforcement request, since criminals prefer stablecoins that lack this technical capability.

Effective mitigation measures exist but require multi-agency involvement and cooperation.

A second risk stems from the fundamental conflict of interest faced by stablecoin issuers: their drive to maximise profits incentivises them to invest reserves in higher-yielding, riskier, and less liquid assets. Issuers investing reserves in such assets face cash-flow insolvency in the event of a run (massive sell-off by stablecoin holders) or balance sheet insolvency if their reserve assets depreciate below their liabilities. This is the rationale for the auditing and reserve requirements in the US’ GENIUS Act and Hong Kong’s recent stablecoin bill.

Insolvency is a material risk, given that the largest stablecoin issuer, Tether (USDT), holds approximately 10 per cent of its reserves in relatively volatile assets such as Bitcoin and precious metals. Tether, which has never undergone a full audit despite repeated promises, is banned in the EU and will be banned in the US under the GENIUS Act. (Tether, however, will launch USAT, a “GENIUS Act-compliant” stablecoin.)

Currently, USDT is traded in multiple jurisdictions in Southeast Asia. Only one country, Singapore, has explicit stablecoin regulation, but this regulation only addresses locally issued stablecoins and not foreign-issued stablecoins like USDT. Southeast Asian countries should consider regulations to ensure that any stablecoin available at domestic exchanges are subject to reserve and auditing requirements.

A third risk is that widespread stablecoin adoption could accelerate capital flight and de facto dollarisation. Demand for stablecoins is strong in countries with high inflation and currency volatility, such as Nigeria and Turkey, where locals use stablecoins to hedge against inflation and for ease of access. The US dollar has accounted for 98-99 per cent of all stablecoins, which means that increasing stablecoin purchases can contribute to these macroeconomic shifts.

The risk of dollarisation from stablecoins is minimal in Southeast Asian countries where crypto is banned as a medium of exchange, such as Indonesia. However, where no such restrictions exist, the growth of stablecoins and resulting dollarisation could strip governments of tools to effectuate monetary policies, as well as erode the tax base and contribute to fiscal instability. Both Cambodia and Laos, where the US dollar is used extensively, have pursued measures to reduce US dollar dependence. For example, to increase adoption of the Riel, the National Bank of Cambodia has been successfully promoting the Bakong digital payments system since 2020; allowing the use of US dollar stablecoins for domestic payments could have the opposite effect.

Countries that have sought to address volatility by minimising capital outflows, such as Malaysia and Indonesia, should be cognisant of the potential use of stablecoins for capital flight. This risk exists wherever US dollar stablecoins can be traded and withdrawn onto “permissionless” blockchains, where funds can move freely between self-hosted accounts. Stablecoins introduce significant risks across multiple sectors, potentially facilitating financial crimes, undermining consumer protection, and imperilling banking and macroeconomic stability. Effective mitigation measures exist but require multi-agency involvement and cooperation. Authorities will be prudent to actively monitor this dynamic technology as its adoption accelerates and its features rapidly evolve.

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