New research published by the Federal Reserve explores how different structures underpinning stablecoins can impact the financial sector and the wider economy.

Authors Gordon Liao and John Caramichael find a “two-tier” structure, where stablecoins are backed by commercial bank reserves, can both support stablecoin issuance and maintain credit intermediation.

A more radical design, a “narrow-bank” structure, where stablecoins are fully backed by central bank reserves, could be more stable but