Stablecoins, Liquidity, and Financial Stability in Crypto Markets

The distinction between whether a shock to the market of any asset is a valuation event or a financial stability event lies in the mechanism through which such a shock is translated into demand for liquidity. The aim of this integrative review is to apply the same concept to crypto-asset markets, where such a translation is largely via stablecoins. This synthesis draws upon seven lines of research, market efficiency, portfolio behavior, stablecoin architecture, DeFi leverage, macro-financial linkages, illicit finance, and regulation, identified through searches of Scopus and Web of Science, citation searching and official sources for the years 2015 to 2026, as well as a date-stamped database of market and regulatory statistics from the 2021 cycle peak to mid-2026. The databases were last searched on 2 October 2026; of the 136 sources included, 32 were among the 9009 unique records retrieved. The review follows PRISMA 2020 where applicable, was not registered, and received no external funding. Three observations can be made from the findings. First, market efficiency in the crypto markets is time varying but not nonexistent, and tail dependency has reduced even while realized volatility has fallen. Second, a comparison of the 2022 collapse of TerraUSD and 2023 de-pegging of USD Coin highlights what differentiates an uncontained run from a contained run: an external reserve, the liquidity of the reserve and not the face value, and a credible resolution mechanism. Third, the reserve-asset channel is asymmetrical—outflows affect short-term Treasury yields two to three times more than equivalent inflows—hence, it cannot be modeled as a linear relationship. A Crypto Liquidity Stress Index is developed based on volatility, deviation from par, redemption pressure, liquidation intensity, and connectedness, all in a four-state escalation framework whose weights and thresholds remain to be estimated.