The development of global standards for stablecoins has experienced a significant slowdown over the past year, sparking concerns among central bankers about potential market fragmentation and increased risk. Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, has noted that progress on international rules has stalled, according to recent reports.
This development has raised concerns, with Bank for International Settlements General Manager Pablo Hernández de Cos emphasizing the importance of global cooperation to avoid a patchwork of rules that could be exploited by firms, in a statement made in Japan. De Cos warned that without international alignment, companies may engage in regulatory arbitrage by shifting operations to jurisdictions with less stringent oversight. This warning comes as major economies are moving forward with their own frameworks, often with different timelines and approaches. The stablecoin sector has grown substantially over the past few years, now accounting for $320 billion, with Tether's USDT and Circle Internet's USDC making up the majority of this figure, according to DeFiLlama.
De Cos noted that the structure of these stablecoins can resemble securities more than traditional cash, pointing out that redemption frictions can cause prices to deviate from their intended value of $1. He also highlighted the risk of sudden withdrawals potentially causing market instability. 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 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 yield, which 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.
However, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.