The development of universal standards for stablecoins has decelerated over the past year, prompting concern among central bankers that regulatory gaps could lead to market fragmentation and increased risk. According to Reuters, Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international regulations has stalled.

Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos expressed concern about this slowdown on Monday in Japan. De Cos emphasized the importance of global cooperation to prevent a patchwork of regulations that companies could exploit, a practice known as regulatory arbitrage, Reuters reported. Without international coordination, firms may relocate to jurisdictions with less stringent oversight. This warning comes as major economies are pushing forward with their own regulatory frameworks, often with different timelines and approaches.

The stablecoin sector has grown significantly over the past few years and now has a value of $320 billion, according to DeFiLlama. Tether's USDT and Circle Internet's USDC account for the majority of this figure. De Cos noted that their structure can resemble securities more than traditional currency, pointing out that redemption issues can cause prices to deviate from their intended value of $1.

He also highlighted the potential for sudden withdrawals to have a ripple effect on markets. Proposed measures to reduce risk include capping interest payments on stablecoins and providing issuers with access to central bank lending facilities or deposit insurance-like arrangements.

Policymakers argue that such measures could make the sector safer while preserving its role in digital transactions. In the United States, lawmakers are working to advance the Digital Asset Market Clarity Act, which aims to establish federal regulations for digital asset markets. The bill passed the House last year and is currently before the Senate, where Banking Committee Chairman Tim Scott and Agriculture Committee Chairman John Boozman are leading the effort. Senators Thom Tillis and Angela Alsobrooks have negotiated a compromise on stablecoin yields that could pave the way for a markup, while Senator Cynthia Lummis, who chairs the Banking Committee's digital assets subcommittee, has indicated that a hearing could take place in the second half of April.

A deal remains contingent on resolving several outstanding issues, including oversight of DeFi and ethics provisions.