Union Investment Exec Warns Stablecoin Reserves Resemble Speculative Hedge Funds

A senior executive at Union Investment, one of Germany’s largest asset management firms, has drawn a sharp comparison between the reserve structures of major stablecoins and speculative hedge funds, casting doubt on their suitability as safe assets for institutional adoption.

Stablecoin Reserves Under Scrutiny

Speaking at the London Digital Money Summit 2026, Christoph Hock, Head of Digital Assets and Tokenization at Union Investment, argued that the reserve portfolios backing Tether’s USDT and Circle’s USDC are structured more like investment funds than simple cash equivalents. Hock noted that Tether, in particular, has been increasing its exposure to volatile assets such as gold and Bitcoin, moving away from a purely cash-backed model.

Hock explained that while many companies adopt stablecoins as a straightforward, cash-like payment method, the underlying reserve structure introduces market risk. He pointed to the March 2023 depegging of USDC, which saw its value fall by approximately 13% following the collapse of Silicon Valley Bank, where Circle held a portion of its reserves. Such an event, Hock warned, would be catastrophic for institutions relying on stablecoins for daily operations or treasury management.

The Core Credibility Problem

According to Hock, the fundamental credibility of stablecoins depends on their ability to function as cash equivalents. However, the pursuit of profit through reserve management—by including assets that carry market volatility—undermines that trust. He stated that the reserve structures of USDT and USDC are effectively similar to those of speculative hedge funds, which are designed to generate returns rather than preserve capital with zero risk.

This creates a paradox: stablecoins are marketed as stable stores of value, yet their reserves are actively managed to chase yield. For institutions that require predictable, low-risk assets, this structure presents a significant barrier to adoption.

Implications for Institutional Adoption

Hock’s comments come at a time when major financial institutions are increasingly exploring stablecoin integration for payments, settlement, and cross-border transactions. The European Union’s Markets in Crypto-Assets (MiCA) regulation, which came into full effect in 2025, imposes strict reserve requirements on stablecoin issuers, including mandatory cash holdings and regular audits. Despite these regulations, Hock argues that the inherent structure of stablecoin reserves may still not meet the safety standards expected by conservative institutional investors.

The executive emphasized that if a loss event similar to the USDC depeg were to occur again, it would not only affect the issuer but also damage the broader credibility of digital asset markets. For institutions, the question is not just about regulatory compliance, but about whether the asset class can truly deliver on its promise of stability.

Conclusion

Christoph Hock’s analysis highlights a growing tension between the operational utility of stablecoins and their financial structure. While stablecoins offer speed and efficiency for digital payments, their reserve management practices introduce risks that may be incompatible with institutional risk appetites. As regulatory frameworks like MiCA evolve, the industry may need to reconsider what constitutes a truly safe stablecoin reserve—one that prioritizes capital preservation over profit generation.

FAQs

Q1: Why did Christoph Hock compare stablecoin reserves to hedge funds?
Hock argued that Tether and Circle manage their reserve portfolios to generate profits by including assets like gold and Bitcoin, which carry market volatility. This structure resembles a speculative investment fund rather than a simple cash equivalent, undermining the stability that stablecoins promise.

Q2: What was the USDC depeg event, and why does it matter?
In March 2023, USDC depegged from its $1 target and fell to around $0.87 after Circle revealed it held $3.3 billion in reserves at Silicon Valley Bank, which had collapsed. The event demonstrated that stablecoin reserves are not immune to external financial shocks, raising concerns about their safety for institutional use.

Q3: How does MiCA regulation address stablecoin reserve risks?
The EU’s MiCA regulation requires stablecoin issuers to hold a significant portion of reserves in cash or cash equivalents, undergo regular audits, and maintain transparent reporting. However, critics like Hock argue that even with these rules, the profit-driven management of reserves may still expose institutions to unacceptable risk.