Congestion Raises Red Flags for Perfectly Backed Digital Dollars
The Federal Reserve has released a staff paper modeling how transaction congestion can destabilize even a perfectly backed digital dollar. The study, dated June 2, 2026, and updated on August 31, 2026, focuses on the interaction between transaction fees and payment-network effects.
According to the researchers, when fees climb too high, small payments become uneconomic and a token's usefulness can fall. This can lead to a coordinated exit by holders, even if the stablecoin is fully backed.
The paper uses an unbalanced weekly panel of five stablecoins from November 2017 through December 2025 and finds that congestion can ration access by transfer size. The study also notes that higher fees coincide with cross-chain reallocation, as users move their assets to cheaper blockchain networks.
The findings support a conditional warning: congestion can create an exit incentive, but it does not guarantee a run on the stablecoin. The researchers emphasize that their model is a latent mechanism, not a forecast of a current or future event.