---
title: "Multi-Issuer Stablecoins and Cross-Border Insolvency"
authors:
  - name: "Alexis Direr"
    affiliation: "Université d'Orléans, LEO"
  - name: "Anastasia Sotiropoulou"
    affiliation: "Université d'Orléans, France"
date: "2026-07-21"
keywords: [multi-issuer stablecoins, cross-border insolvency, redemption game, loss mutualization, MiCAR]
language: en
type: working-paper
---

# Multi-Issuer Stablecoins and Cross-Border Insolvency

**Authors**
- Alexis Direr — Université d'Orléans, LEO — *alexis.direr@univ-orleans.fr*
- Anastasia Sotiropoulou — Professor of Law, Université d'Orléans, France

**Keywords**: multi-issuer stablecoins, cross-border insolvency, redemption game, loss mutualization, MiCAR.

---

## Abstract

This paper models the redemption game that arises when a single fungible stablecoin is backed by reserves distributed across two legally distinct issuers regulated in different jurisdictions. Because the token trades not only on centralized exchanges but also on unregulated markets that draw no distinction based on geographic origin, losses are socialized through prices before formal insolvency proceedings begin and competent authorities set conversion rates. Four results emerge. First, simultaneous redemption at different rates is not implementable: arbitrage forces the higher-rate zone to drain first, transmitting insolvency to an otherwise solvent entity. Second, when insolvency regimes differ in speed, the zone that opens its redemption window first at a less favorable rate faces strategic waiting by holders anticipating access to the higher-rate zone. Third, when authorities independently estimate their coverage obligations, the dominant strategy is to minimize declared responsibility, leaving a share of token holders unserved. Fourth, the zone that can preempt the other's reserves extracts its full shortfall, degrading the solvent zone's conversion rate. The paper then derives policy implications for EU regulation and discusses the structural challenges of governing a multi-issuer stablecoin.

---

## 1. Motivation and contributions

Major stablecoin issuers increasingly adopt **multi-issuer arrangements**: a single fungible token is issued by legally distinct entities, each authorized under a different regulatory framework. The leading example is **USDC**, issued both by Circle Internet Financial, LLC (a US entity under the GENIUS Act) and by its subsidiary Circle SAS (a French-licensed electronic money institution under MiCAR, supervised by the ACPR). USDG (Paxos) is a second example, spanning Singapore and the EU. Because USDC dominates the EU–US corridor, the paper's applied discussion centers on Circle's arrangement viewed from the EU side.

The paper departs from the bank-centered Diamond–Dybvig (1983) run model. A stablecoin issuer is not exposed to first-come, first-served rationing: because the token trades on a continuously open secondary market, **rationing occurs through prices**. As soon as solvency is doubted, the market price falls below par and losses are socialized immediately. Formal insolvency proceedings — where reserves are liquidated and redistributed — intervene only in a second stage, and it is this stage, under multiple co-issuers of one fungible token, that generates the coordination problems analyzed here. (The March 10–13, 2023 USDC depeg to $0.88, following exposure to Silicon Valley Bank, illustrates the price-rationing mechanism.)

The paper establishes **four results**:

1. **Rate arbitrage across secondary markets.** When the token trades on continuously open secondary markets, simultaneous redemption at *different* conversion rates is not implementable. Arbitrage forces the zone offering the higher rate to drain first, transmitting insolvency to an otherwise solvent zone through secondary-market flows.

2. **Differential speed of insolvency regimes.** When regimes differ in procedural speed, the zone that opens its redemption window first *but at a less attractive rate* faces strategic waiting: the option value of accessing the slower, higher-rate zone suppresses redemptions.

3. **Disagreement over the geographic distribution of tokens.** When each authority independently estimates the share of supply it claims responsibility for, the dominant strategy is to minimize coverage down to the level of its own reserves — yielding par conversion in both zones but leaving a residual of token holders unserved ("orphan tokens").

4. **Reserve preemption.** When one zone holds a legal power to preempt the other's reserves, it extracts exactly the amount needed to reach par, degrading the other zone's conversion rate even from a position of full solvency.

The paper positions itself within the emerging literature on multi-issuance (Athanassiou, 2026; Zetzsche, 2026; Arnal, 2026a,b), between the view that treats multi-issuance as a financial-stability threat warranting prohibition (ESRB, 2025; ECB, 2025; Portes, 2025; Lagarde, 2025) and the view that its risks are manageable through existing safeguards (Arnal, 2026a; Atallah, 2025). It complements the legal analysis of targeted MiCAR reforms in Sotiropoulou and Direr (2026) by supplying the welfare benchmark against which reforms should be evaluated.

---

## 2. Model

### 2.1 Setup

Two geographic zones, $A$ and $B$, each with its own regulatory framework. Zone $i$ has $N_i$ tokens in circulation, backed by reserves $R_i$. Initially the stablecoin is fully collateralized in both zones:

$$\frac{R_A}{N_A} = \frac{R_B}{N_B} = 1$$

The analysis starts *after* an insolvency event that reduces reserve value in at least one zone, so that $R_A/N_A,\, R_B/N_B \le 1$ with at least one strict inequality. A competent authority then sets the conversion rate holders obtain in its jurisdiction.

"Insolvency" designates broadly an issuer's failure to meet redemption obligations; "insolvency proceedings" designates any process — administrative resolution or judicial — by which an insolvent issuer's reserves are distributed to claimants through a competent authority.

### 2.2 Assumptions

| # | Assumption |
|---|---|
| H1 | Authorities verify residency and restrict each zone's redemption window to its own residents; regulated centralized exchanges enforce KYC residency checks. |
| H2 | The geographic distribution $(N_A, N_B)$ is observable at insolvency (relaxed in Section 7). |
| H3 | No entity is too big to fail: a strict no-bailout constraint applies; losses fall entirely on token holders. |
| H4 | Contagion runs only through the reserve and coverage mechanisms modeled here — not through broader credit, liquidity, or confidence channels. |
| H5 | Each holder derives utility $u(\tau)$ from conversion rate $\tau \in [0,1]$, with $u$ strictly increasing, strictly concave, $u(0)=0$. |
| H6 | Zone $i$'s authority maximizes $\int_0^{N_i} u(\tau_i(k))\,dk$ subject to $\int_0^{N_i}\tau_i(k)\,dk \le R_i$ and $\tau_i(k)\in[0,1]$. |

By strict concavity and Jensen's inequality, the authority's optimum is the **constant schedule** $\tau_i(k) = R_i/N_i$ for all $k$: a uniform rate, the highest feasible given reserves. A **redemption equilibrium** is a pair of optimal conversion rates $(\tau_A, \tau_B)$.

---

## 3. Results

### 3.1 Benchmarks: single-issuer and multi-issuance without secondary markets

- **Single-issuer counterfactual (Section 3).** Two distinct tokens, one per zone. Equilibrium is $(R_A/N_A,\, R_B/N_B)$. A crisis in zone $B$ ($R_B/N_B < 1$) with a solvent zone $A$ ($R_A/N_A = 1$) is resolved in $B$ without spreading to $A$.
- **Multi-issuance, no secondary market (Section 4).** One token, but trading only on residency-discriminating centralized exchanges. Equilibrium is again $(R_A/N_A,\, R_B/N_B)$; a zone-$B$ crisis is contained.

Insolvency spillover, therefore, is *not* inherent to multi-issuance — it is introduced by the secondary market.

### 3.2 Rate arbitrage with secondary markets (Section 5)

Once the token also trades on unregulated markets indifferent to geographic origin, simultaneous redemption at two different rates becomes infeasible. Suppose $\tau_A = R_A/N_A$ and $\tau_B = R_B/N_B < R_A/N_A$. After arbitrage, the secondary price settles at the *more favorable* rate, $q = R_A/N_A$:

- zone-$B$ holders sell on the secondary market rather than redeem at their inferior window;
- zone-$A$ holders buy on the secondary market and redeem at $R_A/N_A$.

A differential rate thus requires **sequential redemption**. Zone $B$'s process does not effectively begin until zone $A$'s reserves are exhausted: zone $B$'s insolvency produces a run on zone $A$'s window — even when zone $A$ is fully solvent ($R_A/N_A=1$). Only once $A$ is drained does the price fall to $q = R_B/N_B$, after which zone-$B$ holders turn to their own window. The pair $(R_A/N_A,\, R_B/N_B)$ remains the unique equilibrium (uniform rate within each zone), but insolvency has been transmitted to the solvent zone.

> **Note.** Under a *uniform* shock ($R_A/N_A = R_B/N_B < 1$), both authorities offer the same rate, the price settles at $q < 1$, and redemption proceeds simultaneously in both zones — no spillover.

### 3.3 Differential speed of insolvency proceedings (Section 6)

The sequential dynamics above assume both windows open at once; in practice regimes differ in procedural speed.

- **Zone $A$ opens first at the more attractive rate** ($\tau_A > \tau_B$): the base case. Speed and rate advantage reinforce each other; no new mechanism.
- **Zone $B$ opens first at the less attractive rate** ($\tau_B < \tau_A$): holders face a **waiting game** — redeem now at $B$'s inferior rate, or wait for $A$.
  - *Strategic waiting.* If holders are confident $A$ will open promptly at a higher rate, they defer. The secondary price incorporates the option value of $A$, settling **above** $R_B/N_B$. Zone $B$'s wind-down stalls despite opening first.
  - *Redemption under uncertainty.* If timing or rate at $A$ is uncertain (impaired reserves, opaque procedure), the option value erodes and holders may redeem at $B$ immediately. Zone $B$ can then complete first, even at a worse rate, provided uncertainty about $A$ is large enough.
  - *Mixed strategies.* With heterogeneous beliefs, pessimists sell on the secondary market; optimists buy, anticipating access to $A$. The price clears **below** the expected $A$ rate but **above** $\tau_B$; zone $B$'s window stays largely inactive.

### 3.4 Disagreement over token distribution — orphan tokens (Section 7)

Relaxing H2, each authority independently chooses $M_i$, the number of tokens it claims responsibility for, and sets $\tau_i = R_i/M_i$. Because tracking tokens across self-custodied wallets and omnibus accounts is extremely difficult, and each authority wants to minimize its estimate, **minimizing $M_i$ is a dominant strategy**. The feasibility constraint $\tau_i \le 1$ imposes the lower bound $M_i = R_i$. The dominant-strategy equilibrium is:

$$\tau_A = \frac{R_A}{R_A} = 1, \qquad \tau_B = \frac{R_B}{R_B} = 1$$

Both zones resolve at par, each covering only what its reserves support. The remaining $N_A + N_B - R_A - R_B$ tokens are **orphaned**: no window serves them and their holders recover nothing.

Two remarks:
- Orphaning is *more* likely with additional unresolved jurisdictions: with more than two zones, each authority can credibly attribute unclaimed tokens to zones not yet involved, and imprecise geographic estimates make this hard to contest. (Arnal, 2026b reports 7 frameworks: EU/MiCA, US/GENIUS, UK/FCA-BoE, Hong Kong, Singapore/MAS, Japan, UAE.)
- The symmetric equilibrium **breaks** if one zone is legally obliged to serve *all* remaining holders. That zone cannot minimize its coverage; the unconstrained zone resolves first at par, and the constrained zone covers the residual $N_A + N_B - R_A$ tokens at the degraded rate

$$\frac{R_B}{N_A + N_B - R_A} < \frac{R_B}{N_B}$$

Universal-redemption protection thus becomes a **strategic liability**: the unconstrained zone externalizes the entire residual burden onto it.

### 3.5 Reserve preemption (Section 8)

Reserve availability is not legally guaranteed, especially when reserves sit in the other zone: inter-entity rebalancing rests on a private-law agreement that may not survive insolvency, and stays / judicial oversight / competing claims can block repatriation (Odinet & Tosato, 2026). Suppose zone $B$ can preempt zone $A$'s reserves before formal proceedings. A preliminary stage lets $B$ choose the seized amount $P \ge 0$. Since seizing raises $B$'s effective reserves and lowers $A$'s, $B$'s dominant choice is $P = N_B - R_B$. The subgame-perfect equilibrium:

$$\tau_B = 1, \qquad \tau_A = \frac{R_A - (N_B - R_B)}{N_A}$$

Zone $B$ resolves at par by extracting exactly its shortfall from $A$. Because $P = N_B - R_B$ rises with $B$'s insolvency depth, $\tau_A$ falls accordingly — even when $A$ was initially fully solvent. Reserve preemption is a **second contagion channel**, distinct from rate arbitrage.

### 3.6 Loss mutualization as welfare benchmark (Section 9)

The first-best pools reserves across zones. A social planner solves

$$\max_{\tau_A,\tau_B}\ N_A\,u(\tau_A) + N_B\,u(\tau_B) \quad \text{s.t.}\quad N_A\tau_A + N_B\tau_B \le R_A + R_B,\ \ \tau_i \le 1$$

The FOC $u'(\tau_A) = u'(\tau_B)$ with strictly concave $u$ requires $\tau_A = \tau_B$. Substituting the binding constraint yields the **optimal pooled rate**:

$$p^{*} = \frac{R_A + R_B}{N_A + N_B}$$

This is a direct application of Borch (1962): risk-averse holders are best served by equalizing rates, as if the issuers formed one entity. By Jensen's inequality, whenever zones are asymmetrically impaired ($R_A/N_A \ne R_B/N_B$):

$$N_A\,u\!\left(\tfrac{R_A}{N_A}\right) + N_B\,u\!\left(\tfrac{R_B}{N_B}\right) < (N_A + N_B)\,u(p^{*})$$

Mutualization eliminates *all* the distortions above — rate arbitrage, orphan tokens, reserve preemption, and speed-driven temporal externalities — since a single agreed rate leaves no room for unilateral deviation.

> **Authors' critical reading.** Full co-insurance introduces a moral-hazard cost (Pauly, 1968): an authority expecting part of its losses to be absorbed abroad has weaker incentives to supervise its issuer, so mutualization transfers risk from the *less* stringent to the *more* stringent regime and subsidizes regulatory arbitrage. The optimal policy trades off pooling gains against these weakened supervisory incentives.

---

## 4. Implications for EU regulation (Section 10)

### 4.1 The EU–US case: differential speed

Applying Section 6 to Circle requires identifying each side's insolvency track — and both are in flux, in opposite directions:
- **US (Circle LLC).** Currently under ordinary state/federal bankruptcy law. Because USDC exceeds the GENIUS Act's $10bn threshold, this cannot persist: Circle applied for an OCC charter in June 2025 and received final OCC approval on **July 10, 2026** to establish First National Digital Currency Bank, N.A. (Circle National Trust). Once effective, Circle LLC leaves bankruptcy court for a dedicated **Federal Bank Resolution Regime** run by an OCC-triggered private receiver.
- **EU (Circle SAS).** Licensed as an EMI (not a credit institution), so outside the EU bank-resolution framework; it is funneled into ordinary judicial insolvency — in France, *liquidation judiciaire* before the commercial court. The ACPR enforces the MiCAR Article 47 redemption plan and reserve ring-fencing within that process.

Which track resolves faster is untested at multi-billion-dollar scale in either configuration — precisely the setting of the **uncertainty mechanism (6.2)**: holders may redeem wherever redemption appears more advanced, independent of which side opened first.

### 4.2 MiCAR's specific vulnerabilities

Three features make the distortions especially severe for the EU zone:
1. **Mandatory par redemption.** Article 49(2) grants any holder a statutory par-redemption right regardless of nationality or residence, even for tokens acquired on the secondary market — but only for tokens the EU entity *itself* issued (Article 49(6) generally bars redemption fees; Article 46 permits liquidity-related fees in a recovery plan). The GENIUS Act is comparatively imprecise on whether its right extends to all holders. In practice, what channels demand to the EU is the token's **technological fungibility**, not the legal commitment: indistinguishable tokens let holders redeem through the EU window regardless of origin. MiCAR's protection thus becomes the mechanism that *imports* insolvency.
2. **Ring-fencing / reserve preemption.** Circle SAS holds a substantial share of reserves in US-located dollar assets. US insolvency triggers an automatic stay on outgoing transfers (including inter-entity rebalancing owed to Circle SAS); once the federal charter takes effect, an equivalent freeze operates via OCC receivership. EU authorities cannot impose a comparable freeze on US assets — no legal recourse against the extraction.
3. **Coverage / tracing gap.** GENIUS Act §11(b)(2) makes coverage mandatory and comprehensive (no statutory discretion to limit it); MiCAR Article 49(2) likewise ties the obligation to the issuing entity. The vulnerability is **technical, not legal**: because USDC is a single fungible on-chain asset, authorities cannot determine which tokens were issued by Circle LLC vs Circle SAS. The result is a coverage gap functionally equivalent to the orphan-token outcome — but arising from tracing impossibility rather than strategic undercounting.

### 4.3 Targeted MiCAR amendments

Three structural asymmetries disadvantage the EU issuer regardless of its own capitalization: mandatory par redemption, absence of extraterritorial reserve powers, and fungibility-driven exposure to global demand. Three adjustments follow:
1. **Extend Article 46's recovery-plan fee exception to a non-reciprocity trigger** — where the non-EU co-issuer applies materially weaker redemption standards, the EU issuer could invoke liquidity fees even absent its own shortfall, limiting the arbitrage channel (Section 5).
2. **Require EU-facing redemption reserves to be held within the EU** — directly addressing reserve preemption (Section 8).
3. **Make the legal perimeter technically enforceable** — the EBA could require a verifiable attribution mechanism (a shared minting registry or distinguishable on-chain issuer identifiers), converting declaratory coverage into an enforceable one.

These fix the asymmetry of obligations but not the underlying coordination problem: as long as regimes differ in rate, speed, and reserve-availability rules, strategic distortions remain.

### 4.4 Implementing loss mutualization in the EU–US case

Operationalizing Section 9 also needs an EBA-verifiable mechanism to attribute pooled reserves and tokens to issuers. Access to the EU single market via a multi-issuer arrangement could be conditioned on a European Commission **equivalence determination** (EBA technical advice), restricting co-insurance to regimes sufficiently comparable to MiCAR. But an effective agreement demands exceptional cross-border coordination — on reserve standards, insolvency procedures, coverage, and crisis management — for which neither the institutional infrastructure nor the legal framework yet exists. If such coordination is infeasible, the model points to a **multi-issuance ban** as second-best.

### 4.5 Multi-issuance prohibition

A ban (raised by the ESRB, 2025) would require replacing the multi-issuer token with a euro-area stablecoin issued solely by the EU entity, while a distinctly branded global dollar token circulates outside the Union. **Provided reserves are clearly segregated**, this removes the arbitrage channel, orphan tokens, preemption, and speed externalities; without segregation, a shared reserve pool leaves the distortions in place under a new name. Tether's USAT (launched January 2026 via Anchorage Digital Bank, legally/technically distinct from global USDT) illustrates the direction. Costs: EU residents remain exposed to Circle LLC tokens held through unregulated channels (as with USDT today), and **capital fragmentation** — a smaller euro-zone supply, shallower secondary markets, weaker network effects. A full cost-benefit assessment lies beyond the paper's scope.

---

## 5. Conclusion

The paper examines the redemption game arising when a single fungible stablecoin is backed by reserves split across two legally distinct issuers under different regimes, focusing on the conversion rate holders can obtain in each jurisdiction upon insolvency and on how authority interaction shapes it.

The four mechanisms — **rate arbitrage, differential insolvency speed, strategic undercounting, and reserve preemption** — share one structural root: a single fungible token issued by legally distinct but technologically indistinguishable entities, creating a wedge between legal obligations and market realities that no authority can bridge unilaterally.

The policy recommendation follows directly. **Full loss mutualization** — a bilateral agreement to pool reserves and apply one conversion rate to all tokens — eliminates all four distortions and is first-best. Where international coordination is infeasible, a **prohibition on multi-issuance** with zone-specific tokens and clearly segregated reserves also removes the distortions, at the cost of capital fragmentation and a reduced regulatory perimeter over dollar tokens held by EU residents.

### Limitations and research extensions

- **Beyond two zones.** With $N$ jurisdictions, authorities may form bilateral coalitions to coordinate declared coverage and jointly externalize residual losses onto non-coalition zones — a strategic layer absent from the two-zone model.
- **Verifiable attribution.** Any cooperative agreement presupposes verifiable attribution of tokens to issuers (minting registry / on-chain issuer identifiers). Its technical feasibility, and its implications for token fungibility, remain open questions.
- The model abstracts (H4) from credit, liquidity, and confidence contagion beyond reserve and coverage channels.

---

## Main references

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*The full reference list appears in the PDF.*