The development of global standards for stablecoins has experienced a slowdown over the past year, sparking concerns among central bankers that inadequate oversight could lead to market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international rules has stalled, according to a recent Reuters report.
This slowdown has prompted concern from Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation in avoiding a fragmented regulatory landscape. De Cos warned that without international alignment, companies may engage in regulatory arbitrage, shifting operations to jurisdictions with more lenient oversight. As major economies move forward with their own frameworks, often with different timelines and approaches, the risk of regulatory fragmentation increases.
The stablecoin sector has grown significantly over the past few years, with a current value of $320 billion, according to DeFiLlama, with Tether's USDT and Circle Internet's USDC dominating the market. De Cos noted that the structure of stablecoins can resemble securities more than traditional currency, and that redemption issues can cause prices to deviate from their intended value of $1.
He also highlighted the potential risks of sudden withdrawals, which could have a ripple effect on markets. To mitigate these risks, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities or deposit insurance-type arrangements. Policymakers argue that such measures could enhance the safety of the sector while preserving its role in digital payments.
In the United States, lawmakers are working to advance the Digital Asset Market Clarity Act, which aims to establish federal rules for digital asset markets. The bill, which passed the House last year, is currently before the Senate, where committee chairs Tim Scott and John Boozman are leading the effort.
A compromise on stablecoin yield has been negotiated by Senators Thom Tillis and Angela Alsobrooks, which could pave the way for a markup, while Senator Cynthia Lummis has announced a potential hearing in the second half of April. However, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.