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 come to a standstill, according to Reuters. This development is a cause for concern, said Bank for International Settlements General Manager Pablo Hernández de Cos, in a statement made in Japan on Monday.
De Cos emphasized the importance of global cooperation in establishing a unified regulatory framework, warning that a patchwork of rules could be exploited by companies, which may relocate to jurisdictions with more lenient oversight. The lack of international alignment could lead to regulatory arbitrage, where firms take advantage of differing regulatory requirements across jurisdictions.
As major economies push forward with their own regulatory frameworks, often with varying timelines and approaches, the stablecoin sector continues to grow, with a current market value of $320 billion, according to DeFiLlama. Tether's USDT and Circle Internet's USDC account for the majority of this figure. De Cos pointed out that the structure of stablecoins can resemble securities more than traditional currency, and that redemption issues can cause price fluctuations. He also highlighted the risk of sudden withdrawals, which 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 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.