The European Central Bank (ECB) has issued a cautionary statement about the potential destabilizing effect of stablecoins on the eurozone’s financial system. The central bank fears that the rapid rise of these digital assets could lead to a significant draw-down of retail deposits from eurozone banks, ultimately weakening their funding structures and increasing systemic risks in the interconnected European financial market. This shift towards stablecoins poses a challenge to traditional banking sectors as they may face increased volatility and liquidity challenges. Experts at the ECB express concern that this trend, similar to past events like the collapse of TerraUSD and Silicon Valley Bank, could amplify existing risks within the eurozone’s banking system. The central bank emphasizes the importance of regulatory oversight to mitigate these potential downsides.