The regulatory landscape for stablecoins is a patchwork across the world, generating uncertainty about their long-term prospects and potentially creating obstacles for newcomers to the space.
For example, Europe’s MiCA framework stands in contrast to the proposed GENIUS Act in the United States. Both of these differ substantially from Hong Kong’s stablecoin regulations, which were recently finalized.
While these frameworks establish clearer guidelines for stablecoins, including specific reserve requirements, issuer licensing protocols, and permitting procedures, their differing approaches are generating concern. The clarity offered by these separate regulations is a positive step for the industry as a whole.
Krishna Subramanyan, CEO of Bruc Bond, a firm that helps bridge the gap between banks and crypto, argues that these disparities could cause stablecoins to become confined to specific regions, limiting their widespread adoption and the trust they command in different locations.
Conflicting Regulations Impact Stablecoin Viability
MiCA, GENIUS, and Hong Kong’s Stablecoin Ordinance each represent distinct models for regulating stablecoins.
Udaibir Saran Das, a member of the Bretton Woods Committee and visiting professor at the National Council of Economic Research, outlined the key differences. In essence:
These contrasting regulations mean that “issuers must establish separate compliance structures for each region. This includes independent legal entities, audits, and governance models, increasing expenses and creating operational challenges,” Das explained.
“Operational friction arises from differences in reserve requirements, custodial arrangements, and Hong Kong’s Know Your Customer requirements, which necessitate infrastructure rebuilding for wallet providers. These frameworks represent competing approaches to monetary control,” he added.
The costs associated with multiple legal entities and reporting regimes are substantial. Smaller stablecoin businesses may struggle to meet compliance expenses, especially if they operate internationally. This could force smaller companies out of the market or lead to acquisitions by larger players.
According to Subramanyan, this “compliance asymmetry” could lead to market consolidation and reduced innovation. “Over time, regulatory fragmentation will not only increase costs but also determine who can scale and who cannot,” she stated.
Das suggests that without the mutual recognition of different stablecoin regulations, the operational complexities of adhering to multiple requirements—including diverse licensing procedures, independent audits, and fragmented technology—will favor larger, well-funded stablecoin issuers.
“This consolidation pressure may be intentional,” he noted.
Are Global Regulators Moving Toward Unified Stablecoin Laws?
Much of the discussion surrounding crypto regulations, whether for stablecoins, broader market frameworks, or Bitcoin (BTC) reserves, focuses on making specific countries or jurisdictions more competitive.
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As various countries compete to become crypto leaders, Subramanyan said, “Competitive fragmentation is likely to persist in the short term. Jurisdictions are using stablecoin regulation as a tool of economic diplomacy, aiming to attract capital, talent, and technological leadership.”
She points out that Hong Kong, the UAE, and Singapore have developed stablecoin frameworks that encourage adoption, while also implementing licensing requirements tailored to their specific jurisdictions, providing crucial initial protections for their citizens.
This situation may evolve as stablecoin adoption increases, as predicted by prominent crypto leaders like Ripple CEO Brad Garlinghouse. Subramanyan believes that as stablecoins become more integrated into payments, credit markets, and capital flows, “risk will drive convergence.”
“The question isn’t whether coordination is politically desirable; it’s whether financial stability can be maintained without it.”
She added, “Pressure to align will grow as cross-border transaction volumes increase and regulatory gaps begin to generate real economic consequences.”
Coordinating these efforts is challenging but feasible. Subramanyan believes that aligning stablecoin laws across multiple countries “requires operational frameworks for collaboration.”
Major banks and financial institutions, such as the Financial Stability Board, the Bank of International Settlements, and the G20, “are well-positioned to establish baseline standards for reserves, disclosures, and risk mitigation.”
Das suggests that creating 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 warned.
Which Regulatory Approach Will Prevail?
While regulation is both necessary and attainable, the question remains which regulatory regime will serve as a model for future regulation and collaboration.
Das stated that GENIUS, although not overriding existing laws, “will influence global standards through market influence.” The act’s supervisory model, where the comptroller regulates non-bank stablecoin issuers and existing regulators oversee banks issuing stablecoins, could be replicated by other countries.
Subramanyan added that “GENIUS is likely to influence regulatory thinking through its structured approach to reserves, redemption rights, and issuer accountability. By doing so, it will help shape global expectations and inform cross-border compatibility decisions.”
Banks and payment systems are also likely to favor the highest standard for cross-border operations, which means Hong Kong’s “conservative approach could set global norms despite issuing a limited number of licenses,” according to Das.
While major financial centers may eventually reach a consensus on stablecoin regulations, this is unlikely in the near term. In the meantime, smaller players are likely to be squeezed out as stablecoin issuers consolidate in response to new regulations.
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