MIT Study: Smart Contract Bugs, Not Just Reserves, Drive Stablecoin Risk
MIT researchers identified smart contract flaws and bridge failures as the most worrying stablecoin risks on a severity-likelihood matrix. The study challenges the Genius Act's focus on reserves alone.
Key Takeaway
Even fully-backed stablecoins can depeg if smart contracts fail or treasury dealers freeze redemptions.
MIT researchers identified smart contract logic flaws and bridge failures as the most worrying stablecoin vulnerabilities, ranking them highest on a severity-likelihood matrix that challenges the Genius Act's narrow focus on asset backing.
The study argues that the law treats stablecoin stability purely as a balance-sheet problem that conservative asset holdings and supervision can solve. A stablecoin's ability to trade at par under stress depends not only on asset quality but on the functioning of redemption mechanisms, markets, and operational infrastructure — dynamics the Genius framework leaves largely unspecified.
Treasury market intermediary bottlenecks emerged as another critical risk. Broker-dealers can limit stablecoin issuers' ability to honor mass redemption requests, triggering depegs even when reserves are fully backed with liquid assets. The issue gained attention after March 2020, when coronavirus market stress widened US Treasury bid-ask spreads and exposed structural weaknesses in the infrastructure stablecoin issuers depend on.
Paxos accidentally minted ₱17.32 quadrillion ($300 trillion) PYUSD last year, forcing Aave to pause all PYUSD activity. S&P Global gave Tether a poor grade, citing its reliance on high-risk reserves including gold and Bitcoin. US Treasury Secretary Scott Bessent forecast US dollar stablecoins would reach ₱173.23 trillion ($3 trillion) by 2030.
This article was written based on reporting from Dlnews.
