The development of global standards for stablecoins has slowed down over the past year, sparking concerns among central bankers that regulatory gaps could lead to market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, recently stated that progress on international rules has stalled.
This has raised concerns with Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos, who emphasized the need for global cooperation to avoid a patchwork of regulations that companies could exploit. Without international alignment, firms may relocate to jurisdictions with less stringent oversight, a practice known as regulatory arbitrage.
The stablecoin sector has grown significantly over the past few years, with a current value of $320 billion, according to DeFiLlama. Major players like Tether's USDT and Circle Internet's USDC dominate the market. However, their structure can be more similar to securities than cash, and redemption issues can cause prices to deviate from their intended value of $1.
De Cos warned that sudden withdrawals could have a ripple effect on the market. To reduce risks, proposals include limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities or deposit insurance-type arrangements.
Policymakers believe these measures could make the sector safer 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 has passed the House and is currently before the Senate, where lawmakers are negotiating a compromise on stablecoin yield.
A hearing is expected to take place in the second half of April, but a deal is contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.