Most of the crypto industry’s efforts to normalize crypto revolve around stablecoins being the miracle cure for everything. Mastercard is jumping in, Kraken is opening doors for institutions, and all are clamoring for speedier transactions. Before you bet the farm on stablecoin staking, especially as a tool to boost user acquisition, let's talk about the elephant in the room: the very real, and often overlooked, risks.

Staking Rewards Masking Systemic Flaws?

Imagine stablecoin staking as giving away free appetizers while your restaurant has a reputation for kitchen fires. Yes, that helps get people through the door, but are you truly solving the fundamental issues at play? On the back end, staking provides an alluring yield that has drawn in billions of dollars from investors. These yields can mask real issues of the stablecoin itself or the platform offering the staking service.

In this fight among leading USD-pegged issuers such as Circle (USDC), Tether (USDT), and PayPal (PYUSD), staking is one of their weapons. This competition can quickly turn into a race to the bottom, with platforms feeling the need to provide high, unsustainable yield in order to attract users. Where does that yield come from? If so, how sustainable is it really? Alternatively, does it function more like a Ponzi scheme, paying existing stakers returns with new users’ deposits. Remember the old saying "If it is too good to be true, it probably is." Now we need to extend that success to the crypto frontier.

This is why the GENIUS Act of 2025, introduced by Rep. But regulation alone won't solve everything. It has always been true that we must be proactive in identifying, tracking and cutting risks off at the pass. The Fed is clearly correct to be concerned about nonbank firms like FTX and stablecoins further fragilizing the traditional banking ecosystem. We cannot make the same mistake we did with the 2008 financial crisis by failing to prepare and heed these warnings.

Smart Contracts Are Not Always Smart

Here's an unexpected connection: remember the Therac-25, the radiation therapy machine that malfunctioned in the 1980s, delivering lethal doses of radiation to patients due to software bugs? Smart contracts, the code that powers most staking platforms, are…software. And software has bugs.

Hackers need only take advantage of a small vulnerability, flaw, or misconfiguration in a smart contract. This is leading to the forfeiture of millions of dollars. We’ve watched this play out again and again. Keep an eye on impermanent loss! After all, if the underlying stablecoin suffers from a de-pegging event, the value of your staked tokens could plummet. And lastly, there’s the dreaded rug pull, when the developers just up and leave with all the money.

  • Smart Contract Vulnerabilities: Bugs can be exploited.
  • Impermanent Loss: Value can decrease.
  • Rug Pulls: Developers disappear.

Payments professionals need to understand these risks. Don't just blindly trust the marketing hype. Dig into the code. Audit the smart contracts. Diversify your stablecoin holdings. Implement robust security measures. Bonding or staking these assets should be approached as one might treat other high-risk, speculative investments.

Who Controls the Stablecoin Platform?

Beyond his focus on financing, the article raises a really important observation. The important question is not if stablecoins will be adopted, but who will run the platforms that will keep them moving. This is HUGE. Are we ceding governance over our financial inclusion system to a few big tech firms, or totally unregulated other outside corporations?

Think about the parallels with social media. We used to rejoice at the opening up of information. Now, we’re living through the repercussions as centralized platforms determine which news and opinions people see. We need to learn from these mistakes.

We should strive to make sure that if stablecoin platforms exist, they are transparent, accountable, and face regulatory scrutiny appropriate to the risks they pose. That doesn't mean stifling innovation. It doesn’t mean creating a regulatory free-for-all, where untested innovation is allowed to run rampant and potentially threaten the safety and soundness of the financial system.

What if the large banks become stablecoin issuers in their own right, like some experts forecast? Would that be a good thing? On one hand, it could serve to legitimize stablecoins and usher them into the financial mainstream. On the flip side, it could double down on concentrating more power in the few large institutions.

The story of payments’ future is being written as we speak. As payments professionals we are all responsible to recognize the risks but to lead the charge in designing the world we want to live in. Don't get caught up in the hype. Do your homework. Ask tough questions. And keep in mind the biggest innovations usually carry the biggest risks. Be prepared.