Fed paper models blockchain congestion triggering stablecoin runs despite full reserves

September 4, 2026 at 08:30 PM2 min

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Federal Reserve economists modeled how transaction congestion on public blockchains can destabilize a fully backed stablecoin. The paper, updated Aug. 31, 2026, finds that high fees and weak network effects can turn individual exits into coordinated redemptions. The finding sharpens an unresolved question as Treasury implements the GENIUS Act.

Key Facts

The Federal Reserve staff paper was first dated June 2, 2026, and updated Aug. 31, 2026.
The model removes reserve risk entirely and assumes the stablecoin is fully and safely backed.
For below-median USDC transfers from 2021 through 2025, the fee-to-value ratio at the 75th percentile frequently exceeded 100%.
The empirical panel covers five stablecoins from November 2017 through December 2025 where data are available.

The Model

The Fed economists deliberately remove the traditional source of stablecoin fragility by assuming the token is fully and safely backed. The source of instability is instead the interaction between transaction fees and payment-network effects. Under low congestion, the network can absorb a shock, but under high congestion and weak network effects, the paper finds a threshold beyond which redemptions can become coordinated and abrupt. Higher fees reduce use, reduced use makes the token less attractive, and the weaker network then gives more holders a reason to leave.

Redemption Measurement

In the paper's main empirical panel, redemption is measured as a negative change in a stablecoin's Ethereum circulation. That measure can represent redemption for fiat or migration to another blockchain, so the data capture pressure on Ethereum-based circulation rather than a clean count of customers cashing out at an issuer. The study uses an unbalanced weekly panel of five stablecoins from November 2017 through December 2025 where data are available. Its starkest distributional result comes from 2021 through 2025: for below-median USDC transfers, the fee-to-value ratio at the 75th percentile frequently exceeded 100%.

GENIUS Act Gap

The GENIUS Act gives regulators broad tools for policing issuers, reserves, and redemption promises. Its explicit reserve provisions and Treasury's current section 3 proposal set no price or capacity standard for a public blockchain. The paper presents a latent mechanism, not a forecast of a current run, and sharpens an unresolved question as Treasury implements GENIUS.