The development of global standards for stablecoins has decelerated over the past year, sparking concerns among central bankers about potential market fragmentation and heightened risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, noted that progress on international regulations has stalled, according to recent reports. This slowdown is a concern, as emphasized by Bank for International Settlements General Manager Pablo Hernández de Cos in a statement made in Japan.
De Cos stressed the importance of global coordination in avoiding a fragmented regulatory landscape that companies could exploit, highlighting the risks of regulatory arbitrage if firms relocate to jurisdictions with less stringent oversight. As major economies move forward with their own frameworks, often with varying timelines and approaches, the stablecoin sector continues to grow, with a current value of $320 billion, as reported by DeFiLlama. The sector is dominated by Tether's USDT and Circle Internet's USDC. According to de Cos, the structure of these stablecoins can more closely resemble securities than traditional currency, with redemption issues potentially causing price deviations from their intended value of $1.
Furthermore, sudden withdrawals could have a ripple effect throughout the 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 are leading the effort to move it forward.
Senators have negotiated a compromise on stablecoin yield, which could pave the way for a markup, and a hearing is potentially scheduled for the second half of April. However, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.