Onigiri Weekend Digest: Institutional Lens #10

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Good weekend from Onigiri Capital!

Over the past year, we’ve covered how stablecoins have evolved from a niche crypto instrument to one of the most important pieces of modern financial infrastructure. We explored their advantages—instant settlement, 24/7 availability, transparency, programmability, interoperability across borders, and their emergence as a new operating layer for global finance.

But as the market grows past US$280 billion, and as stablecoins increasingly touch traditional banking, sovereign debt markets, and institutional balance sheets, a different conversation is emerging—one that goes beyond innovation and efficiency.

Recap this Week's Headliners

SS #51 - ECB Flags Stablecoin Risks to Eurozone Banks
SS #52 - Bitcoin Risk Pushes S&P to Downgrade USDT to 'Weak'

With the current market sentiment turning cautious and volatility rising across both digital assets and traditional markets, this week brings an equally important dimension: the risks, vulnerabilities, and structural tensions evident as stablecoins approach mainstream financial scale.

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🍙Onigiri Take

Two developments this week underscore a decisive shift in how traditional financial institutions evaluate stablecoins—not as peripheral digital instruments, but as emerging competitors with the potential to influence banking stability and sovereign debt markets.

1. European Central Bank issued its most explicit warning to date, highlighting the risk that large-scale adoption of stablecoins could divert retail deposits away from Eurozone banks, weaken a critical funding source, and introduce new channels of systemic stress.

2. S&P Global Ratings downgraded USDT to its lowest stability tier, citing exposure to Bitcoin and other non-traditional reserve assets that fall outside emerging institutional and regulatory expectations for fully reserved digital liabilities.

The themes of this week highlight a critical transition:

Stablecoins are no longer a fringe experiment competing with crypto exchanges or DeFi platforms. They are now viewed by central banks, regulators, and rating agencies as direct competitors to banking deposits, money-market funds, and sovereign debt liquidity dynamics.

Three market signals are converging:

1. Regulators are escalating from observing to intervening. The ECB’s warning frames stablecoins as a threat to bank funding and sovereign bond stability, not just a novel payment instrument. This shifts the conversation to systemic importance.

2. Institutional standards are now shaping the competitive landscape. S&P’s downgrade of USDT formalizes what many institutions already fear: reserve opacity, high-volatility assets, and unsecured loans are incompatible with mainstream corporate and sovereign users.

3. The industry split between “regulated money” and “crypto money” is widening fast. USDC, PYUSD, and upcoming MiCA-licensed EUR stablecoins are aligning with conservative reserve structures, while USDT’s model will increasingly face scrutiny and capital flight during periods of stress.
   

For institutional users, the next phase of stablecoin adoption will be dominated by transparency, regulatory compliance, audited reserves, and integrated bank-grade infrastructure—not yield-enhanced reserve strategies.

🍙Winners & Losers: Institutional Outlook

🍙Under the Hood: The Real Mechanics Behind Each Headline

ECB Flags Stablecoin Risks to Eurozone Banks — What’s Actually at Stake?

The European Central Bank’s warning marks a significant policy shift:

• Stablecoins are now viewed as direct competitors for retail deposits, the lifeblood of commercial banks.

• A large stablecoin “run” could trigger forced selling of short-dated Treasuries, amplifying stress in the world’s biggest sovereign debt market.

• This transforms stablecoins from a crypto sector issue into a macro-financial stability issue.

What’s coming next:
Accelerated MiCA enforcement, caps on issuance, liquidity stress tests, and strong promotion of the Digital Euro as the state-backed alternative. Europe’s message is clear: stablecoins can exist—but as regulated money-market-like instruments, not parallel banking systems.

S&P Downgrades USDT Due to Bitcoin Exposure — Why It Matters Beyond Crypto

S&P Global Ratings assessed USDT’s backing and delivered the lowest stability rating (“weak”):

• 5.6% of reserves in Bitcoin exceeds its overcollateralization buffer.

• Gold, secured loans, and other non-cash assets account for 8% of reserves.

• Tether’s disclosure cadence and reserve breakdown lack the transparency demanded by institutional standards.

This matters because USDT is the settlement currency of global crypto markets, representing over 65% of all stablecoin trading pairs and liquidity pools. A downgrade from a major rating agency is no longer “crypto sentiment”—it is a formal inclusion of stablecoin risk into mainstream credit and systemic risk frameworks.

🍙Stablecoin ≠ Crypto — The Future of “Digital Cash Infrastructure”

This week reinforces a foundational principle: stablecoins are not speculative crypto assets—they are digital representations of fiat money, and must behave like cash, not like investment portfolios.

For the next phase of adoption, institutions and regulators will require:

• Full 1:1 backing in cash and short-term sovereign instruments

• Daily or real-time reserve disclosure

• Independent audits and attestation frameworks

• Segregated custody and bankruptcy-remote structures

• Clear jurisdictional licensing and compliance

Stablecoins that meet this bar will increasingly integrate into payroll, cross-border settlements, treasury operations, and digital banking. Those that do not will be marginalized.

🍙Institutional Risks & Unknowns

1. The Concentration Risk in USDT Liquidity: Crypto markets remain heavily dependent on USDT. Any destabilization could propagate through exchanges, DeFi pools, and derivatives markets.

2. Bank Funding Displacement: If retail deposits migrate rapidly into stablecoins, particularly during stress periods, banks could face expensive funding shortages and pressure on lending capacity.

3. Sovereign Bond Market Contagion: A forced liquidation of hundreds of billions of Treasuries by stablecoin issuers experiencing a “run” could amplify global borrowing costs and impair monetary policy transmission.

4. Regulatory Divergence: The U.S., EU, and Asia are moving at different speeds. Fragmentation introduces arbitrage, inconsistent oversight, and uneven adoption conditions across markets.

5. CBDC vs. Private Stablecoin Power Struggle: The ECB’s positioning shows that stablecoins and CBDCs are entering direct competition. The industry may face future caps or constraints on private issuance in certain regions.

6. Information Asymmetry and Attestation Gaps: Even top issuers still vary widely in disclosure standards. Rating agencies entering the space will increase pressure, but uniform global reporting standards remain years away.

Onigiri Capital (onigiri.vc), a US$50 million blockchain-focused investment fund, launched by Saison Capital, the venture arm of Japan’s Credit Saison. Onigiri Capital is on a mission to chart the next chapter of finance and invest in seed and Series A blockchain startups in stablecoins, payments, RWAs, DeFi and financial infrastructure. The fund’s strategy emphasizes connecting startups to Asia’s growing digital asset markets.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.