The trajectory of stablecoins — cryptocurrencies whose value is pegged to another asset, most commonly a fiat currency — is at an inflection point. Already, stablecoins account for trillions of dollars in on-chain value transferred each month. But the broadening interest in this asset stems not from their foundational role in crypto markets, but from their potential to solve persistent real-world inefficiencies.
Stablecoin regulation: Where are we today, and what are the challenges on the road ahead?
Where we are today: A strong focus on value stability
As of July 2025, stablecoin issuer regulation is either fully or partially in force in 11 of our top 25 jurisdictions. These jurisdictions collectively accounted for 38% of total crypto value received in 2024. Notably, the majority of jurisdictions that have implemented or proposed these rules are advanced economies. In contrast, most emerging markets within this top 25 have yet to propose stablecoin regulation, a notable trend given that these jurisdictions are where stablecoins may find the most grassroots traction.
From a policy perspective, the risks posed by stablecoins are not novel. However, their scale highlights the need to ensure they are used responsibly and closely monitored. Baseline concerns include value stability and financial integrity; however, as stablecoins become large enough to impact the broader financial system, concerns related to monetary policy and financial stability become significant.
Risks posed by stablecoins
- Consumer protection: Stablecoins may fail to maintain their peg, exposing holders to loss. Stablecoin holders may lack clear legal rights or protections, particularly in cases of issuer insolvency or operational failure. Misleading claims about asset backing, redemption rights, or custodial practices can create consumer harm.
- Financial integrity: Like other forms of value, stablecoins can be abused to facilitate illicit finance, including money laundering, terrorism financing, and sanctions evasion. Risks grow as stablecoins scale.
- Monetary policy: Widespread substitution of commercial bank deposits with stablecoins can, in some situations, reduce banks’ capacity to extend credit, weakening monetary policy transmission. Additionally, the use of stablecoins pegged to foreign currencies can contribute to currency substitution, undermining domestic monetary sovereignty and policy effectiveness.
- Financial stability: A sudden loss of confidence in a widely used stablecoin could trigger rapid, large-scale redemptions, or “runs,” potentially forcing asset fire sales by issuers and causing contagion across financial markets.
Challenges as national frameworks emerge
- Differences in stringency: While directionally similar, national regimes differ in stringency, and seemingly small differences can have a significant impact on commercial viability. For instance: ①Rules on reserve composition can directly affect an issuer’s profitability. Higher cash requirements reduce the room for yield-bearing assets, which can impact the commercial viability of any stablecoin business. ②Rules on redemption timelines can have operational and prudential implications, particularly where there are surges in redemptions. In Hong Kong, redemption requests must be met within one business day; similarly, proposed rules in the UK mandate redemption at par by the next business day after the request. These are significantly stricter than the five business day timeline in Singapore.
- Jurisdiction-specific features: In some cases, national regimes include distinct policy features that issuers should note. ①Jurisdictions differ in approach—Singapore and the UK (proposed) allow trading without regulating the issuer, while the EU and Japan impose obligations on distributors or require comparable regulation for foreign issuers. ②Some regimes treat stablecoins as payment instruments (UK, HK), while under MiCA they are also classified as e-money, triggering both crypto-asset and traditional payment services rules. Canada regulates them under securities laws; Japan restricts issuance on permissionless blockchains. ③Certain frameworks set rules based on the reference currency—for example, Hong Kong regulates all HKD-pegged stablecoins globally, and MiCA imposes extra restrictions on non-EU currency-pegged stablecoins.
- Regulatory fragmentation: Stablecoin issuers often operate globally, offering tokens that can be traded, redeemed, and used in multiple jurisdictions. However, they face a patchwork of national regimes, with varying rules on reserve backing, licensing, consumer protection, and custody. This creates legal uncertainty and operational complexity, particularly when requirements conflict.
The next crossroads for stablecoin regulation: financial integrity
The characteristics that make stablecoins appealing as a means of payment also make them appealing for moving illicit funds. Since 2022, the majority of illicit crypto flows has also been denominated in stablecoins. This is an unfortunate by-product of growing real-world stablecoin usage, and it is an inhibitor to scale. Policymakers and financial institutions will remain cautious about the usage of stablecoins unless reputational and regulatory risks can be managed.
AML/CFT rules are generally imposed on intermediaries, less so on asset issuers. Nonetheless, the Financial Action Task Force opined in 2020 that existing AML/CFT standards cover stablecoins. Applying traditional AML/CFT practices would mean that issuers must:
- Assess the financial integrity risks arising from their business activities, and develop controls to mitigate them;
- Conduct due diligence on new institutional partners, exchanges, or liquidity providers at onboarding and on an ongoing basis; and
- Monitor transactions in which they are a direct counterparty, including through Know Your Transaction (KYT) processes.
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