The development of global standards for stablecoins has experienced a slowdown 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, noted that progress on international rules has stalled, according to recent reports. This lack of progress 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 cooperation in establishing a unified regulatory framework to prevent companies from exploiting differences in regulations across jurisdictions. The absence of international alignment could lead to regulatory arbitrage, where companies relocate their operations to areas with more lenient oversight. As major economies move forward with their own regulatory frameworks, often with varying timelines and approaches, the risk of a patchwork of rules increases. The stablecoin sector has experienced significant growth over the past few years, with a current value of $320 billion, according to DeFiLlama, with Tether's USDT and Circle Internet's USDC accounting for the majority of this figure.
De Cos noted that the structure of stablecoins can be more similar to securities than cash, with redemption frictions potentially causing prices to deviate from their intended value of $1. Furthermore, sudden withdrawals could have a ripple effect on the market. 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.
A compromise on stablecoin yield has been negotiated, 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.