Stablecoins are booming, but regulation remains in flux 

Discussions on how stablecoins should be classified for regulatory purposes continue – despite the product’s global market cap exceeding $200 billion in early 2025, according to S&P Global Ratings

Payments processing giant Stripe’s $1.1 billion acquisition of stablecoin platform provider Bridge earlier this year was seen as an endorsement of the stablecoin sector, a branch of cryptocurrencies whose value is tied to a stable asset such as the US dollar. 

Global regulatory frameworks covering stablecoins have also been evolving. In 2022, the Group of Seven (G7), the Group of Twenty (G20) and the international Financial Stability Board (FSB) called on various standard-setting bodies to revise standards and principles or provide further guidance supplementing existing standards and principles. 

Meanwhile, last year, the EU enforced the Market in Crypto-Assets regulation (MiCA), which divides stablecoins into either e-money tokens (EMTs) or asset-referenced tokens (ARTs). 

Further regulatory discussions concerning stablecoins are gaining prominence in Singapore, Hong Kong, the Middle East and the US. The change of administration in the US – which has signalled it will offer a more welcoming regulatory environment to the digital asset industry – has put many supervisory discussions on hold as central bodies wait to see what happens. 

Dollar dominates  

Besides the US’s role in the wider global financial system, around 99% of the stablecoin market is fuelled by tokens backed by the dollar. 

Stablecoins started out as settlement tokens for cryptocurrency exchanges, such as the ill-fated FTX. By settling in stablecoins, such as Tether’s US dollar-pegged USDT, traders can reduce exposure to the price volatility of the underlying asset and hedge their positions without needing to hold the actual cryptocurrency. Tether is the world’s largest stablecoin by market cap. 

However, Stripe’s recent acquisition has lit a fire under the sector, says Richard Crook, chief executive at Deus X Pay, a regulated provider of institutional stablecoin payment solutions. Even Stripe co-founder and chief executive Patrick Collison admitted he was “shocked” at the rapid pace of stablecoin adoption in the market at the time of the acquisition.

In addition to maintaining their value by referencing a fiat currency or asset class, stablecoins enable cross-border payments, support decentralised finance, and can act as a bridge between traditional and digital finance.

Global regulators are examining stablecoins’ reserve requirements, liquidity management and custodial safeguards to protect consumers. However, as with any regulatory framework, achieving a global consensus is complex.

Dea Markova, director of policy at Fireblocks, a platform provider for blockchain-based products and digital asset operations, said what she thinks “makes things interesting”  is when regional jurisdictions start translating these principles for their local market. 

According to Markova, payments tend to be sovereign while stablecoins and digital asset tokens are global in nature. Regulators are looking not only at how stablecoins interact with deposits and other forms of payments in a jurisdiction, but also where they are issued. 

“Wherever you list, in Tokyo or London, it is the same thing,” she added. “That creates a new paradigm. This idea that you have global issuances and local rules – that creates some friction.”

MiCA: leader to laggard 

MiCA, which came into effect last year, was initially praised as one of the first major regulations to offer clarity for digital assets and stablecoins. However, its market-leading status could be short lived, as many in the industry comment that the mandate was outdated almost at the time of issuance. 

According to Crook it has been “eye watering” for a regulation such as MiCA to go from “leader to laggard” in less than 12 months. “Before Trump was elected, MiCA was the leading regulatory regime,” said Crook, because at the time the US’s approach to digital asset regulation was “a basket case” and MiCA offered “clarity”.

However, since MiCA, central authorities in Singapore, Hong Kong and the United Arab Emirates have held their own regulatory discussions. Meanwhile, the rest of the world waits to see which direction the new leaders at the US Securities and Exchange Commission (SEC) will take. 

One criticism of MiCA, as well as ongoing discussions around the UK’s crypto regime, is that it regulates the technology, rather than the asset. “If you’re using DLT [distributed ledger technology] to issue something with monetary value,” said Crook, it is required to be “under MiCA”, such as if a “dairy farm issues a credit note that happens to be on a DLT”. 

UK approach 

Recently, the Financial Conduct Authority (FCA) began to rethink how the UK views stablecoins in the wake of MiCA. 

According to Grace Wyatt, partner at law firm Addleshaw Goddard: “From my perspective, the UK and the EU have gone in very different directions, which is unexpected given how closely allied most of our regulatory frameworks are.”

These different directors have spawned philosophical debates about what is and isn’t money, and how it is regulated, she said.

“The EU has decided that stablecoins are e-money, which is essentially an existing framework that was already there, and they have essentially just bolted MiCA on top of that regime.” Stablecoins and e-money are “very different things”. 

While there are rumours of a second iteration of MiCA in Europe, the existing regulation has caused “all kinds of problems” because there are “huge amounts of uncertainty in terms of what’s happening in Europe,” said Wyatt. “The UK has drawn a line in the sand and said ‘we are doing something different’.”

The UK government will engage firms on draft legal provisions for the crypto asset regime early in 2025. The FCA has set out a phased approach, starting at the end of 2024 and continuing into 2026, with discussion papers, consultation papers and final policy statements leading to the regime’s launch in 2026.

In a change from the previous government’s proposals, the UK does not intend to bring stablecoins into its payments regulation at this time, because the additional regulatory burden was greater than current use cases. Under previous proposals, fiat-backed stablecoins were to be brought into scope of the UK payments regulation with two separate, but interlinked, regulatory regimes under the FCA and the Bank of England.

Different paradigms 

According to Jannah Patchay, founder and director at Markets Evolution, a strategic advisory for regulated digital assets firms, several different paradigms are emerging.

While MiCA was the first clear regulatory guidance to emerge, the discussion around that mandate started in 2019, when “the crypto industry was not very mature when it came to policy engagement”.

The regulatory conversations back then reflected more how a bank or a financial institution would view crypto or stablecoins “rather than how the market has evolved over time”.

A second paradigm is emerging in geographical regions that do not have major currencies on the world stage so they don’t have the same concerns as G7 countries, Patchay noted.

“We’re talking [about] Hong Kong, Singapore, the United Arab Emirates, etc. Nevertheless, they are jurisdictions that have very strong financial services sectors, very strong regulatory reputations and thoughtful regulators who are putting a lot of care and effort into coming up with regulatory regimes that balance innovation and the potential of stablecoins with the actual risks.”