The development of global standards for stablecoins has experienced a significant slowdown over the past year, raising concerns among central bankers about potential 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 slowdown is a cause for concern, said Bank for International Settlements General Manager Pablo Hernández de Cos, emphasizing the importance of global coordination to avoid a patchwork of regulations that companies could exploit. Without international cooperation, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. As major economies move forward with their own frameworks, often with different timelines and approaches, the stablecoin sector continues to grow, currently valued at $320 billion.
The two largest stablecoins, USDT and USDC, account for the majority of this value. According to de Cos, the structure of these stablecoins can be more similar to securities than cash, and 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 the market.
To reduce 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 believe that such measures could make the sector safer 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 has passed the House and is currently before the Senate, where committee chairs are leading the effort to move it forward. While a compromise on stablecoin yield has been negotiated, a deal remains contingent on resolving several outstanding issues, including DeFi oversight and ethics provisions.