Stablecoins have been regulated in different ways across the globe, raising concerns about their viability and possibly putting up barriers for newcomers.
Europe’s framework, Markets in Crypto-Assets (MiCA), varies significantly from the US’s GENIUS Act. Both are distinct from Hong Kong’s own stablecoin rules, which were finalized just two weeks ago.
These three regulatory frameworks have provided clear standards for stablecoins. Reserve requirements, issuer licensing and permit schemes now have cut-and-dry conditions, which have undoubtedly made it easier for stablecoins to flourish.
But their differences are distinct enough to cause concern. According to Krishna Subramanyan, CEO of banking liaison firm Bruc Bond, stablecoins currently “run the risk of becoming jurisdiction-bound, limited in usability and trust outside specific regions.”
“Competing models” of stablecoin law can impact viability
MiCA, GENIUS and Hong Kong’s Stablecoin Ordinance all offer diverging models for regulating stablecoins.
Udaibir Saran Das, a Bretton Woods Committee member and visiting professor at the National Council of Economic Research, explained their differences to Cointelegraph. Essentially:
These diverging laws mean that “issuers must build parallel compliance structures for each jurisdiction. This includes separate legal entities, audits and governance models, adding cost and operational friction,” Das explained.
“The operational friction comes from divergent reserve requirements, custody arrangements and Hong Kong’s holder-level Know Your Customer that forces wallet providers to rebuild their infrastructure. These frameworks represent competing models of monetary control,” he said.
All these legal entities and reporting regimes are costly, and smaller stablecoin companies will find it harder to pay compliance costs, particularly if they operate across multiple regions. This could push smaller fish out of markets or force them to become part of an acquisition deal by larger firms.
According to Subramanyan, this “compliance asymmetry” could concentrate market power and limit innovation. She said, “Over time, regulatory fragmentation won’t just raise costs but will define who can scale and who cannot.”
Das said that without mutual recognition of different stablecoin laws, the operational complexity of meeting multiple requirements, which include multiple licensing processes, parallel audited and fragmented technology, favors large, capitalized stablecoin issuers.
“Consolidation pressure may be intentional,” he said.
Do global regulators want to align stablecoin laws?
Much of the rhetoric surrounding crypto regulations, whether for stablecoins, market framework laws or Bitcoin (BTC) reserves, is about making whatever jurisdiction or country the most competitive possible.
Related: UK crypto hopes stall, but ‘encouraging signs’ are there
As the crypto industry in different countries jockey for primacy, Subramanyan said, “In the near term, competitive fragmentation will likely persist. Jurisdictions are positioning stablecoin regulation as a lever of economic diplomacy, seeking to attract capital, talent and technological leadership.”
She said Hong Kong, the UAE and Singapore all have comparative frameworks for stablecoins that stimulate adoption, while on the ground, they have licensing requirements unique to their jurisdiction, “offering much-needed initial protections to their nationals.”
This could all change as stablecoin adoption grows, as prominent crypto executives like Ripple CEO Brad Garlinghouse are predicting. Subramanyan said that as stablecoins become increasingly intertwined with payments, credit markets and capital flows, “risk will drive convergence.”
“The question is not whether coordination is politically desirable; it is whether financial stability can be maintained without it.”
She continued, “Pressure to align will rise as cross-border volumes increase and regulatory gaps begin to generate real economic externalities.”
Coordinating on these issues is tough, but possible. Subramanyan said that aligning stablecoin laws across multiple countries “requires operational frameworks for collaboration.”
Major banks and financial institutions like the Financial Stability Board, the Bank of International Settlements and the G20 “are well-positioned to define baseline standards for reserves, disclosures and risk mitigation.”
Das said that building supervisory colleges for cross-border stablecoins with shared Anti-Money Laundering protocols is “complex but necessary.”
“Without coordination, regulatory arbitrage becomes the dominant business model,” he said.
Which regulation will win out?
If regulation is both needed and possible, it still leaves the…
cointelegraph.com