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, noted that progress on international rules has stalled.
This has raised concerns among regulators, including Bank for International Settlements General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation to avoid a patchwork of rules that companies could exploit. Without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. The stablecoin sector has grown significantly over the past few years, with a current market value of $320 billion, according to DeFiLlama.
The sector is dominated by Tether's USDT and Circle Internet's USDC. 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 warned that sudden withdrawals could have a ripple effect on markets. To mitigate these risks, policymakers have proposed measures such as limiting interest payments on stablecoins and providing issuers with access to central bank lending facilities or deposit insurance-type arrangements. These measures aim to make the sector safer while preserving its role in digital payments. In the US, lawmakers are working to advance the Digital Asset Market Clarity Act, which would establish federal rules for digital asset markets.
The bill has passed the House and is currently before the Senate, where lawmakers are working to resolve outstanding issues and reach a compromise on stablecoin yield.