The development of global standards for stablecoins has decelerated over the past year, sparking concerns among central bankers that regulatory gaps could lead to market fragmentation and increased risk. According to Reuters, Bank of England Governor Andrew Bailey, who chairs the Financial Stability Board, stated that progress on international rules has stalled. This has raised concerns for Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos, who emphasized the importance of global cooperation to prevent a patchwork of regulations that companies could exploit.
De Cos warned that without international alignment, firms may relocate to jurisdictions with more lenient oversight, a practice known as regulatory arbitrage. As major economies push forward with their own frameworks, often with different timelines and approaches, the stablecoin sector has grown significantly over the past few years, now accounting for $320 billion, according to DeFiLlama. The majority of this figure is comprised of Tether's USDT and Circle Internet's USDC. De Cos noted that the structure of these stablecoins can resemble securities more than cash, and that redemption frictions can cause prices to deviate from their intended value of $1.
He also highlighted the potential risks of sudden withdrawals, which could have a ripple effect on markets. 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 open questions, including DeFi oversight and ethics provisions.