There’s conflicting info about the security of stablecoins. We’re here to help.

Misinformation is everywhere these days. And the crypto space seems to attract more than its fair share.

While stablecoins have been called “crypto’s killer use case” by advocates, skeptics may leave you with the impression that they’re some kind of financial grenade — just waiting to explode under the right conditions.

So, are stablecoins unstable, uninsured, and easily weaponized? Are they really a global finance threat and a frivolous crypto fad?

Let’s start with a little history lesson.

The crypto industry learned its lessons from TerraUSD, FTX, and other spectacular blow-ups. Today’s major stablecoins are fully backed by high-quality liquid assets like U.S. Treasury bills and cash. These are all held in transparent, audited reserves that do not typically offer yields.

Some may even call these assets… boring? And that’s a good thing.

Stablecoins are essentially digital wrappers for dollars, designed to move money faster, cheaper, and with more transparency than the existing banking system.

That’s not to say there’s no need for regulation. But the current debate is shaped less by facts and more by outdated narratives, selective anecdotes, and a reflexive suspicion of anything that touches crypto.

This post aims to clear that up.

We’ll unpack the most common misconceptions about stablecoin security — like the idea that they’re susceptible to a “bank-run” or are a haven for bad actors. We’ll explain why none of that is true. Not because the industry is perfect, but because smart regulation should start with reality, not fear.

Let’s start with the biggest myth of all: that stablecoins are just one bank failure away from bringing down the global economy.

Misconception 1: Stablecoins Are Inherently Run-Prone

This argument — made repeatedly by policymakers over the years — equates fully reserved stablecoins like USDC with the collapse of TerraUSD, a notoriously unbacked algorithmic coin. Never mind that one was backed by code, and the other by actual U.S. dollars and short-term Treasuries.

Some will point to a brief time in mid-2023 when USDC lost its dollar peg after the Silicon Valley Bank collapsed and $3.3B of Circle’s reserves were momentarily inaccessible. But users were never locked out of redemptions, and the peg recovered within days — because the underlying collateral was sound. Circle has since diversified its banking partners and moved the majority of reserves to BlackRock-managed Treasury portfolios.

A proper stablecoin isn’t fractional reserve banking — it’s more like a money market fund with a blockchain interface. If it’s fully backed and liquid, there’s simply no mechanism for the kind of cascading insolvency policymakers imagine.

Misconception 2: Stablecoins Aren’t Truly Backed

Another favorite talking point is that stablecoins are just “digital tokens” with no real backing. That might have been true of sketchy projects in the early crypto days, but today’s leading stablecoin issuers publish monthly attestations of reserves from top-tier accounting firms. They take regulation and consumer confidence seriously. USDC and Paxos’ USDP, for example, are backed 1:1 with cash and Treasury bills — meaning every token is redeemable, on demand, for a US dollar.

They’re not FDIC-insured, but that’s by design. These are not deposit accounts. They don’t lend your money out or expose it to credit risk. In fact, because they hold reserves in segregated custodial accounts, stablecoins might be less risky than a regional bank during a crisis — there’s no balance sheet to get upside-down.

If you’re going to regulate stablecoin reserves (and you should), it makes more sense to treat them like payments infrastructure, not banks. Which is exactly what the proposed Clarity for Payment Stablecoins Act tries to do: require 1:1 reserves, redeemability, and transparency, without overcomplicating things.

Misconception 3: Stablecoins Are a Haven for Illicit Finance

There’s a persistent narrative that stablecoins are the new go-to for criminals, rogue states, and terrorist financiers. And while stablecoins have appeared in investigations (just like cash and wires and gold and real estate), the data paints a very different picture.

According to Chainalysis’s 2024 Crypto Crime Report, illicit activity accounted for just 0.34% of all crypto transaction volume — down further from previous years. And even within that sliver, stablecoins are often easier to trace than traditional methods. Unlike suitcase cash or shell corporations, stablecoins leave a digital trail thanks to an immutable ledger — the blockchain itself.

Issuers like Circle and Tether have routinely frozen suspicious addresses, cooperating with law enforcement faster than traditional banks ever could.

Characterizing stablecoins as uniquely dangerous misses the real issue: bad actors will use any system they can, and the transparency of blockchains often makes it easier — not harder — to catch them.

The Reality? The More Stablecoin Are Used, the Safer They Become

One of the great ironies in the stablecoin safety debate is that broader adoption doesn’t increase the risk — it reduces it.

As stablecoins become more widely used by enterprises, institutions, and global businesses, their infrastructure becomes more battle-tested. Their economic incentives align more with long-term stability. Their issuers come under greater scrutiny. And the network effects kick in: every additional legitimate user makes the ecosystem safer, not shakier.

But the biggest bottleneck to this next phase of growth isn’t technical — it’s operational. Specifically, it’s accounting and finance teams.

Even as product and treasury leaders push to adopt faster, cheaper payments using stablecoins, many enterprise finance teams are stuck without the tools to handle on-chain transactions. Spreadsheets don’t cut it when you’re reconciling wallets across multiple chains. Tax and compliance workflows break down. Audits become a headache.

That’s why the next leap forward in stablecoin adoption — and security — depends on better enterprise infrastructure.

Stablecoins: The Smarter Way to Move Money On-Chain

Bitwave offers the most complete enterprise solution for companies ready to integrate stablecoins into their financial stack. From automated reconciliation and tax tracking to multi-chain support and seamless wallet integrations, Bitwave gives AP (and AR) teams everything they need to adopt on-chain payments without sacrificing compliance, auditability, or control.

In other words: Stablecoins can add a new level of security and efficiency for your payment operations. Bitwave can show you how.

→ Read More: Bitwave Stablecoin Payments

Further down the hole, we go.

Yesterday, hackers stole more than 120,000 ETH, or the equivalent of $323 million, in the second-largest DeFi exploit of all time — and the largest attack-to-date on Solana ( SOL -x%). The attack’s target was Wormhole, a popular bridging platform for blockchains like Avalanche, Ethereum, Solana, and Terra.

This attack exposes real concerns regarding wrapped and bridged assets and is another concern compounding to recent Solana problems.

What Happened?

In short, the devil is in the git commits — and the hackers must have been watching like hawks. The exploit was found on a deprecated validation step on Solana. But how is this possible?

Wormhole’s protocol has a set of “guardians” that essentially verify transfers of assets between chains. Somehow, the guardians verified the hacker’s transfer of ETH from Solana to Ethereum as a legitimate transaction.

This is where things get interesting.

• The attacker found a way to mint fake Wormhole ETH on Solana
• Then made it look as though the guardians approved the deposit
• Finally, they made their “Wormhole ETH” real by withdrawing it back to Ethereum

And like that, Wormhole ETH went to zero, and all the ETH in Solana was backed by nothing — a worst-case scenario that will have broad implications for DeFi.

3 Takeaways to Consider for Tax Preparation and Accounting

Bridged and Wrapped assets ≠ L1 assets

Bridging assets across Layer 1 (L1) and Layer 2 (L2) protocols is a foundational component of current DeFi scaling trends. However, a fundamental problem with bridged assets has largely been ignored: Is a bridge asset the same as the original asset?

The answer is no. While it may be tempting to think of a bridged asset as 1 to 1 equivalent, it is not. And the hackers were able to exploit this by minting Wormhole ETH and withdrawing that to real ETH. A more subtle form of this attack could have resulted in small minting actions over the course of longer periods, gradually causing the Solana balance to drift from the Ethereum locked balance.

Takeaway: Bridged and wrapped assets have a different risk models than L1s, and that maybe impact their tax and accounting treatments. In an ideal world, bridging would work as a transfer between wallets, so the cost basis would not have to be re-established. However, it is not that simple, and you probably need to talk to as professional.

2. These are Novel Attack Vectors

Crypto assets are marked by novelty — and the Wormhole hack is a novel failure in the market system. “Normal” crypto hacks like the recent Bored Ape Yacht Club NFT theft only impact a select group of people. But the Wormhole attack affected all holders of Wormhole ETH when the bridged asset went to zero and became worthless.

This threatens the entire DeFi system — investors in Solana Wormhole ETH liquidity pools were probably exposed to arbitragers who could exchanged worthless Wormhole ETH for other Solana assets. This then has a contagion effect where even modest exposure to the hacked asset results in substantial monetary loss across different markets.

3. Ethereum wins the day

Solana is already down close to 40% from all-time highs — and the wormhole attack will only make matters worse. Patrick White, Co-founder, and CEO of Bitwave, predicts that the impact on the price action of ETH will be positive. “The exchanges will quickly move to block off the stolen ETH, so we’re effectively looking at a decrease in the ETH supply,” says Patrick.

The Wormhole attack demonstrates that DeFi is still in its infancy — and security in its infrastructure still has a long way to go. While it was reported the hack loss was fully covered by a crypto VC friendly to Solana, the impacts of this attack will continue to affect the space. “Beyond everything else, showing people the risk of bridging between protocols is a major positive for the upcoming ETH 2.0 launch.”

When we started Bitwave in 2018, my co-founder and I had a single vision — to enable digital assets for enterprises. Both Amy and I have deep experience in enterprise software, and we both believed that enterprises would inevitably adopt crypto, so it was sort of a no-brainer. This past year has proven out our faith as businesses from Tesla to Topps to Time Magazine have lobbed themselves into digital assets, and we only see this accelerating.

To that extent, and in an effort to encourage more enterprises to bring digital assets onto their balance sheet, today we’re launching the Bitwave Digital Asset Maturity Model — a first of it’s kind roadmap for any business to adopt digital assets safely, compliantly, and with full support from their CFO and finance team. Is your business sitting on a stockpile of in-game assets, historical images, or revenue that could be tokenized, digitized, or NFT’ized, but you aren’t sure where to start? Start here.

“By simply watching the price of Bitcoin fluctuate in the press, you might not realize that businesses have adopted whole classes of digital assets and are re-wiring their companies to embrace a decentralized future,” said Bitwave Co-Founder and CEO Pat White. “We want to ensure that any business interested in the opportunities unlocked by digital assets has a clear map to success.”

We decided to write The Digital Asset Maturity Model for a simple reason — we want to see general adoption of digital assets at enterprises, and we’re so confident in our product that we’re not afraid to share our expertise. More to the point, our broad experience working with finance teams and digital assets means we keep seeing the same issues day after day, and we thought we could help. For instance, you might wake up one morning to see an email from your CTO saying he decided to spin up a smart contract project and bought a bunch of ETH, or a CFO nervous about inflation (4% now) who is hounding the board to diversify into a deflationary asset. We’ve seen it all, and we can help you.

Without giving away too many spoilers, we break the problem down into four phases.

Adopt

Is one of your contractors demanding to be paid in crypto? A CTO with a corp card hooked up to Coinbase? You suddenly have digital assets on your balance sheet, and your days of happily pretending you won’t have to deal with this problem are over. First step? Setup policies, get some software, and start building processes!

Expand

Wait a minute, it took 30 seconds and cost $1 to pay an enormous contractor bill, across boarders, with no headaches or phone calls to the bank? Is there really a world where digital assets could actually make your business better, more efficient, and more profitable? Indeed there is, and at this level you’re looking to support not just one or two wallets at your org, but hundreds, and not just a single use case, but Account Receivable, Accounts Payable, maybe even payroll and bonuses (we pay our’s in crypto). You need software to collectively monitor wallets, support robust custodial solutions, and more.

Unlock

Suddenly your organization is a true believer — digital assets have become a significant part of your business processes, maybe even one of your major revenue streams. At this point your tax and accounting software has to handle millions of transactions a month, monitor thousands of wallets, and accurately account for all of this. You need to have training setup for new employees, checks on existing wallets for private key access, and more.

Amplify

Ever though about firing your banker? We have customers who have done it — they’re issuing bonds directly on Ethereum, earning yield from DeFi pools, and managing millions of dollars, at scale, on the blockchain. You need financial analysts who are thinking about your portfolio and helping to monitor your financial health, but you also don’t need a banker taking 3% on simple financial transactions. Your business is becoming more self empowered and the finance team is fundamentally changed. You probably need tooling to support this, but you certainly need new processes and roles.

We sincerely hope you like this model, and whether you’re a customer or not, it makes your life better. Please reach out to us if you think we could help you, but more importantly, go bring digital assets onto your balance sheet!

by Patrick White, CEO

I’m thrilled, and genuinely humbled, to announce today that Bitwave has raised a $7.25mil seed round, led by Blockchain Capital and an incredible collection of investors from Nascent, Nima, Ar.ca, XBTO Humla, and with support from existing angel Rowan Trollope.

We started Bitwave with a simple goal — to bring digital assets to enterprises. With over 30 customers, including publicly traded companies and the world’s foremost ICOs, I like to think we’re well on the way to achieving our dream.

But, what does it really mean to bring digital assets to enterprises? Well, it all starts with the basics — tax and accounting. Bitwave is the absolutely leading solution for business digital asset tax and accounting. That includes basic reconciliation and gain loss reporting, but extends to AR, AP, wallet monitoring, and more. Our goal is to natively support any digital asset business process our customers can envision, and we’ve recently broached a new threshold with a free to use digital asset bulk send contract you can use right from Bitwave.

Our customers include companies like Greenidge Power Generation and Elite Mining, miners helping to make the crypto industry greener and more sustainable. We helped Stoner Cats through their NFT launch, and I get excited about customer Opyn and their incredibly forward looking DeFi options contracts, and Radar Relay (now Core Scientific) the team that helped start all this DeFi craziness.

Our customers have made us who we are, and I want to extend a hearty thank you — building an enterprise company is fundamentally a social exercise, it’s about finding people you can work with that have the problem you want to solve, and our customers have become some of our best friends.

Bitwave also supports a broad partner network of crypto-knowledgable tax and accounting advisors who have been the backbone of our success, working tirelessly to help us better the product, and define the future of tax and accounting. If you’re looking for digital asset tax and accounting help, please reach out to our partners.

If your business uses cryptocurrencies or Digital Assets today, or would like to, Bitwave has solutions that can make the life of your tax and accounting team infinitely better — visit us at bitwave.io or reach out to us at info@bitwave.io. If you’re a developer looking to make a real impact on the world, we’re hiring for every position and take our role in the crypto revolution seriously. Reach out to us, we’d love to talk!

Finally, if you’re just passionate about crypto — keep doing what you’re doing. We’re making an impact, the world is getting better for the unbanked, small businesses, and anyone that wants greater control over their financial future. The world needs more curious, excited, inquisitive, and forward looking people, and you’re definitely that kind of character.