Learning to Live with Crypto: Supervisory Dilemmas in a Dollarised Tokenised World

2nd October 2025 

Key takeaways

• Washington pivoted from 'let it burn' to strategic embrace: stablecoins as internet dollars and tokenisation as market plumbing to extend dollar reach.
• A hybrid equilibrium emerges: permissionless rails persist for cross border flows, while parts of regulated finance adopts tokenisation to various degrees
• Risks run deeper than AML: a USDT and USDC duopoly concentrates power; non fungible stablecoins lock users in; brittle bridges add exploits; dollarisation accelerates; fully reserved coins drain deposits and weaken lending.
• Non US supervisors should compete on architecture: build tokenised deposits anchored in central bank money, pursue BIS Unified Ledger, and constrain retail stablecoin usage.

Introduction

The collapse of FTX in late 2022 produced a fleeting sense of vindication among regulators who had long warned that crypto-assets were unsustainable. The strategy in Washington was, for a time, to let the ecosystem "burn"—to deny it links to the financial system and institutional legitimacy, to keep banks away from its balance-sheet risks, and to allow market failures to play out without public intervention. Yet the political economy has shifted. Under the Trump administration, the United States has embraced crypto-assets as part of its financial and geopolitical strategy, celebrating stablecoins as a digital extension of the dollar and casting tokenisation as the next phase of capital-market modernisation.

This pivot matters beyond American shores. What was once framed as a speculative frontier now intersects directly with questions of monetary sovereignty, prudential regulation, and cross-border payment systems. The most likely outcome is not the wholesale displacement of the existing financial system, nor the full absorption of crypto into bank-led infrastructures, but a hybrid equilibrium: a coexistence where permissionless networks persist while regulated finance rebuilds its plumbing on tokenised money and assets.

For supervisors outside the United States, this presents challenges that extend beyond the oft-mentioned risks of money laundering, consumer protection, financial crime and stablecoins breaking their peg. The deeper dangers lie in two areas: the concentration of issuance, the creeping dollarisation of particularly emerging market economies. A third and perhaps the most serious, the erosion of credit money itself, should concern the U.S. too.

Above these concerns lies another complication. The network effects and interdependencies created by digital networks make the inherent power in them unmistakable. Regulators must now navigate an increasingly politicised environment, where taking decisive action is more difficult.

At the same time, tokenisation is not merely a threat. It offers genuine efficiency gains in settlement, programmability, and collateral management. The task for non-U.S. jurisdictions is therefore not to wall themselves off but to compete on architecture: to build tokenised bank deposits anchored in central bank money, and to interlink them through frameworks such as the Bank for International Settlements (BIS) concept of the Unified Ledger.

To understand the magnitude of this shift, we must first examine how dramatically the United States has reversed its position on crypto-assets—from hostile neglect to strategic embrace.

From "Let It Burn" to Strategic Embrace

The initial supervisory instinct after the FTX collapse was defensive. Senior voices in Washington argued for keeping banks away from crypto-asset exposures, emphasising that if the sector failed, the damage should remain self-contained. This was the "let it burn" posture: crypto was viewed as a speculative bubble, not worth the costs of rescue or integration.

This calculus has now reversed. The Trump administration has not only welcomed crypto but positioned the United States as its natural home. Stablecoins are championed as "internet-native dollars"—a means of deepening dollar penetration into global payments and increasing demand for U.S. Treasuries. Treasury Secretary Scott Bessent has been explicit in welcoming this role, describing stablecoins as new rails for dollar liquidity that reinforce U.S. hegemony. Tether's Chief Executive Officer, Paolo Ardoino, markets his firm's coin in the same strategic language, calling it a bulwark of U.S. power.

This political alignment between statecraft and private issuance is significant. It transforms stablecoins from a regulatory nuisance into a strategic instrument. The United States is now exporting not only dollar liquidity through traditional banking channels but also programmable, bearer-like versions of the dollar through offshore entities. The rest of the world inherits this reality, whether or not it welcomes it.

Coexistence as the Baseline

The most plausible equilibrium is not one in which crypto disappears, nor one in which it fully replaces existing financial institutions. Rather, it is a coexistence equilibrium. In this scenario, the crypto-asset ecosystem continues to operate on permissionless networks—Ethereum, Solana, and others—while regulated finance introduces tokenised securities and assets. In some jurisdictions, tokenised bank deposits and central bank digital currencies (CBDCs) are advancing from concept to pilot stage, and together they represent the most credible path toward a financial system that is both stable and innovative.

Stablecoin transactions reached trillions of dollars in 2024, with North America a net source of outflows that meet global demand for dollars. Emerging markets, particularly in Latin America and Sub-Saharan Africa, are experiencing the highest stablecoin use relative to gross domestic product (GDP). Demand intensifies whenever local currencies depreciate against the U.S. dollar. This is functionally a new but different layer of eurodollar markets—digital, instantaneous, pre-funded, comprising ample retail activity.

At the same time, experiments in tokenised deposits and wholesale CBDCs show how regulated finance can internalise the same efficiency benefits and innovation without ceding monetary sovereignty. The contours of coexistence are therefore clear: permissionless crypto as a parallel rail for speculative and cross-border activity, and tokenised money and assets within the regulatory perimeter for institutional finance.

While this coexistence seems straightforward in principle, widespread confusion about what tokenisation actually means complicates both implementation and regulation.

Tokenisation is Misunderstood

There is a widespread misunderstanding of what tokenisation actually means, partly due to nomenclature. "Coins" and "tokens" evoke bearer instruments, which they do mimic, simply because crypto networks are designed to be permissionless, and –– if you have an internet connection you can access them. "Wallets" don't hold coins, they hold cryptographic credentials. "Tokens" are nothing but identifiers in the ledger, and any programmatic logic associated with them are stored separately in the ledger too.

The key then, to work as intended, programmatically and cut out intermediaries, is that the other assets, tokens, the programmatic instructions, be on the same ledger too. This architecture also ensures that network effects are locked in from the start. This is why the Bank for International Settlements's use of the term "Unified Ledger" is a far better naming than tokenisation.

Beyond the Familiar Risks: Concentration, Dollarisation, and the Attack on Credit Money

Regulators often focus on anti-money laundering (AML), terrorist financing, consumer fraud when discussing crypto-assets or in the case of stablecoins, them depegging. Yet other risks lie deeper. Three stand out.

Market concentration

The rhetoric of decentralisation obscures the reality that stablecoins—the essential "cash" of the crypto system—are issued by a duopoly. Tether (USDT) and Circle (USDC) account for the overwhelming majority of circulating stablecoins. Measures of market concentration, such as the Herfindahl–Hirschman Index (HHI), place the stablecoin market well into oligopolistic territory. Moreover, despite stablecoins being almost uniformly denominated in dollars, they are not fully fungible: each stablecoin remains bound to its own contract design, liquidity pools, and redemption mechanics even when on the same ledger. As a result they threaten to introduce the same network effects and economies of scale that have produced Big Tech platforms in other parts of the economy, into what as up to now has been a monetary commons.

Attempts to patch this non-fungibility on the network layer through cross-chain bridges and synthetic wrappers have introduced new security vulnerabilities and usability frictions. And because Tether and Circle serve as the base pairs for decentralised exchange liquidity, any destabilisation—whether through a de-peg, a reserve failure, security flaw or a governance dispute—would reverberate across multiple chains simultaneously. In effect, the decentralised economy rests on a centralised fulcrum.

This concentration risk is compounded by a second, more insidious danger: the acceleration of digital dollarisation.

Dollarisation

Almost all significant stablecoins are denominated in U.S. dollars. This stark disparity has little to do with differences in regulation and arbitrage. It stems primarily from the dollar's unrivalled status as global reserve currency. Stablecoin adoption in emerging markets is accelerating a form of stealth dollarisation that bypasses domestic monetary policy frameworks. Unlike conventional dollarisation through physical cash or offshore deposits, stablecoins move at internet speed and require only a smartphone wallet. The International Monetary Fund (IMF) has documented that flows spike when local currencies weaken against the dollar, embedding pro-cyclical shocks into fragile economies. The result is a parallel offshore dollar channel, operating without lender-of-last-resort support, yet directly influencing domestic liquidity conditions.

The European Union's MiCA regulation illustrates how dollarisation risks can be addressed pragmatically in sophisticated markets. Rather than chasing away Eurodollar-type activity that remains important to the financial sector, non U.S. business and governments alike, it focuses on typical everyday dollarisation behaviour: it allows dollar stablecoins, but it targets their transaction volumes and retail payment-like usage.

Yet even these twin risks of concentration and dollarisation pale before a third, more fundamental threat to the monetary system itself.

The erosion of credit money

The most acute problem, however, is that stablecoins undermine the very essence of money as credit. Making stablecoins stable requires them to be backed by public collateral: cash or cash like equivalents. But this means that if households and firms increasingly shift funds into stablecoins rather than bank deposits, banks lose access to the cheap, stable funding base that underpins lending. Loan books shrink, lending spreads rise, and the money multiplier contracts. The macroeconomic consequences are profound: slower investment, dampened growth, and greater pro-cyclicality, especially in credit-intensive sectors such as construction and small and medium-sized enterprises. What looks like a neutral technology becomes, in aggregate, an assault on the very mechanism that powers modern economies: the creation of credit money.

The Supervisory Dilemma Outside the United States

For supervisors beyond U.S. jurisdiction, the pivot in Washington transforms the regulatory challenge.

They must contend with the extraterritorial reach of U.S. stablecoin policy riding in on the back of the internet. This means redemption flows that tighten liquidity abroad while reinforcing U.S. markets, with porous supervisory perimeters vulnerable to arbitrage, and with crisis-management dilemmas in the absence of a lender of last resort for foreign-issued digital dollars. They must also reckon with the market power of the new private money platforms, much as the rise of Big Tech has thrown into sharp relief the vulnerabilities of digital sovereignty in other domains. On top of this, but like supervisors everywhere, they face the erosion of their own domestic credit systems if stablecoins pull deposits out of banks.

Supervisors face a double bind: they must defend monetary sovereignty against imported dollarisation while simultaneously preserving the credit-creating role of domestic banks against disintermediation by rigid, fully reserved stablecoins.

Tokenisation as an Opportunity

Yet confronting these challenges need not mean purely defensive action. The same technology that threatens sovereignty can, properly harnessed, strengthen it.

It would be a mistake to view this technology solely through the lens of risk. Properly designed, it can address long-standing inefficiencies in settlement and collateral markets. It is correct that technically, distributed ledgers are not as efficient as centralised ones. But the gains happen elsewhere, via disintermediation and automation.

Tokenised deposits allow for atomic settlement—the simultaneous exchange of cash and assets—reducing settlement fails and daylight overdrafts. Programmability enables automated escrow, conditional payments, and event-driven transfers, reducing back-office costs and legal friction. The composability of tokenised money with tokenised securities allows for real-time collateral management and instantaneous trade lifecycle events.

In this sense, tokenisation can achieve many of the benefits that crypto-asset advocates promise, but have not delivered yet.

The BIS Alternative: The Unified Ledger

The BIS has articulated a coherent alternative to reliance on stablecoins but that covers much more. Its proposal for a Unified Ledger combines tokenised central bank money, tokenised bank deposits, and tokenised securities in a single programmable infrastructure.

The public sector provides the safe settlement asset and governance framework; the private sector provides customer intermediation and innovation. The design preserves the "singleness of money"—the guarantee that deposits are redeemable at par—while delivering the efficiency benefits of tokenisation.

For jurisdictions outside the United States, this model offers a strategic counterweight. Instead of importing U.S.-dominated stablecoins as the de facto digital cash, they can offer domestic tokenised deposits with comparable user experience, backed by their own monetary authorities. If the alternative is faster, safer, and programmable, and may offer interest, the attraction of stablecoins diminishes for everyday payments and securities settlement.

Understanding how this alternative works requires examining both its technical architecture and its governance implications.

Unified Ledger: Architecture and Interoperability in a Tokenised System

Unlike privately issued stablecoins, whose dollar denomination masks deep fungibility issues—a consequence of differing contract designs, liquidity pools, and bridge mechanics—a Unified Ledger combines tokenised central bank reserves (wholesale CBDC), tokenised bank deposits, and tokenised assets on a single programmable infrastructure. This avoids the patchwork of cross-chain bridges, synthetic wrappers, and security-prone interoperability layers.

The BIS's extensive research and pilot projects, are not merely technological experiments; they represent a strategic effort to co-opt distributed ledgers to preserve and reinforce the foundational two-tier monetary system in a digital age. Interoperability, from this perspective, is the critical mechanism for ensuring that various regulated distributed systems can connect in a manner that anchors all transactions to central bank money, thereby maintaining monetary control.

Creating such infrastructure requires governance coordination and agreed-upon standards—from API formats to permissioning structures and finality consensus. This may be more easily achieved within an supervisory area. But internationally it will be complex politically, and ledgers likely will be separate requiring agreement on standards or the more ambitious idea of interlinking via a hub and spoke model.

Tokenised deposit systems, envisaged by BIS, would use permissioned networks where known, trusted intermediaries (banks) operate nodes, and users access tokens through their bank's interface.

Several live experiments show how this can be done:

• Project Agorá: Brings together multiple central banks and private institutions to build a cross-border payments infrastructure integrating tokenised wholesale CBDC and commercial money on a unified ledger.
• Project Helvetia & Jura: These projects, led by the Swiss National Bank in collaboration with the Banque de France and the BIS, focused on the settlement of tokenized assets against wholesale CBDC.
• Project Dunbar: This project, involving the central banks of Australia, Malaysia, Singapore, and South Africa, explored the feasibility of a common platform for multiple CBDCs (an m-CBDC platform).
• Project Mariana: This experiment, involving the central banks of France, Singapore, and Switzerland, explored the use of novel DeFi-inspired technologies, specifically automated market makers (AMMs), for the cross-border exchange of hypothetical wholesale CBDCs.

This model—interoperable by design and institutionally governed—stands in sharp contrast to the fragmented, patchwork represented by current stablecoins. But because tokenised deposits and CBDC run on a Unified ledger the power inherent and concentrated in them will be apparent. Supervisors should prepare for politics too.

Restoring Elasticity to Money's Future

This architecture also addresses the problem of rigidity inherent in fully backed private money: unlike stablecoins, tokenised bank deposits expand and contract with the credit cycle, preserving the elasticity of money that underpins modern economies. Banks can continue to extend credit; they can issue more deposit tokens as needed (subject to normal regulation) and central banks can support them with liquidity. There's no hard limit like a 100% reserve; the system can respond to demand surges, which is critical during crises or even seasonal variations. In other words, tokenised deposits integrate with lender-of-last-resort facilities and deposit insurance, preventing the kind of sudden loss of confidence that an unregulated stablecoin might suffer.

By anchoring these deposits in central bank reserves within a unified ledger, the system combines programmability with the ability to support lending and investment, rather than freezing liquidity at issuance.

These experiments and frameworks point toward a possible future where the benefits of tokenisation are captured within regulated structures. But the window for action is narrowing.

Conclusion: Living With, Not By, Crypto

The strategic die is cast, but the game is far from over. The United States has moved from studied indifference to active sponsorship of a crypto-dollar ecosystem. Stablecoins now function as an offshore extension of the dollar, while tokenisation is reshaping the vocabulary of market design.

For supervisors outside the United States, the choice is not whether to live with crypto, but how. The dangers are real: concentration, dollarisation, and—most acutely—the hollowing out of credit money itself. But the opportunities are equally present: tokenised deposits and Unified Ledger infrastructures can deliver the efficiency gains of crypto while preserving monetary sovereignty and financial stability.

The task is to metabolise the risks while seizing the architectural advantage. Living with crypto is inevitable. Living by it—ceding control of money and credit to offshore issuers—is not.

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