Table of Contents
- A World of Rules, But No Rulebook
- The Great Regulatory Divide
- The Unintended Consequences: High Costs, Less Innovation
- The Inevitable Convergence?
- Which Set of Rules Will Win?
The Global Stablecoin Race: How a Jumble of New Laws Could Lead to Centralization, Not Chaos
For years, stablecoins existed in a regulatory Wild West. These digital assets, pegged to currencies like the U.S. dollar, operated with little to no government oversight. But that era is officially over. A new wave of stablecoin laws is emerging across the globe, from Europe to the U.S. to Hong Kong. While this is a step toward legitimacy, it’s also creating a new kind of chaos.
As a journalist who has been covering this shift, I’ve noticed a strange paradox. While each jurisdiction is trying to create a welcoming and competitive environment for crypto, the sheer number of different rules could end up hurting the very industry they’re trying to help. Instead of fostering innovation, this “regulatory race to the top” could benefit a handful of giants and squeeze out the little guys.
The CEO of Bruc Bond, Krishna Subramanyan, puts it bluntly: stablecoins are at risk of becoming “jurisdictional captives, with limited availability and trust outside of specific regions.”
Let’s break down this complex problem and see why a lack of global coordination could have major, unintended consequences.
A World of Rules, But No Rulebook
The biggest issue is that the new laws are all operating on different models, creating what some experts are calling a “competition of regulatory models.”
- Europe’s MiCA Framework: The MiCA (Markets in Crypto-Assets) framework is a big win for crypto in Europe. It allows non-banks to issue stablecoins, but they must operate under the watchful eye of the European Banking Authority. It’s a progressive, albeit strict, approach.
- The U.S. GENIUS Act: The U.S. has a different playbook. The proposed GENIUS Act would give stablecoin issuance power to banks and federally licensed entities, keeping the traditional financial system at the center of the action. It’s a more conservative, institution-first model.
- Hong Kong’s Rules: Hong Kong’s new stablecoin ordinance requires a license from the Hong Kong Monetary Authority (HKMA) and imposes strict, very specific requirements for issuers.
These are three very different approaches, and for a stablecoin company, that’s a huge problem. It means a company that wants to operate globally can’t just follow one set of rules. It has to create “parallel compliance structures” for each region, complete with different legal entities, audits, and governance models.
This is where the costs begin to pile up.
The Unintended Consequences: High Costs, Less Innovation
The operational friction created by these different rules is staggering. Each new jurisdiction adds layers of complexity and cost. For example, a company might have to meet different reserve requirements in Europe than it does in Hong Kong. It might need different custody arrangements or have to rebuild its entire tech infrastructure to comply with new regulations.
This kind of “compliance asymmetry,” as Subramanyan calls it, is a huge advantage for big, well-funded companies. They have the legal and financial resources to jump through all the necessary hoops. A small startup, however, would find it nearly impossible to scale and compete.
In essence, these divergent laws could end up centralizing the market, concentrating power in the hands of a few large stablecoin issuers. As Udaibir Saran Das of the National Economic Research Council puts it, the pressure to consolidate might even be “intentional.” He believes that without a system of mutual recognition between countries, meeting multiple regulatory requirements gives an insurmountable advantage to the “large, well-capitalized” players.
This is a powerful paradox. The goal of many stablecoin laws is to protect consumers and foster growth, but by creating a fragmented regulatory landscape, they could end up stifling the very innovation they were meant to encourage.
The Inevitable Convergence?
Despite the current friction, experts believe that some form of global coordination is inevitable. As Subramanyan notes, “risk will drive convergence.” As stablecoins become more deeply integrated into global payments, credit markets, and capital flows, the pressure to harmonize regulations will become too great to ignore.
The question isn’t whether coordination is politically desirable; it’s whether a lack of coordination is financially sustainable. When regulatory gaps start to create real economic problems—like the potential for a new wave of regulatory arbitrage—the pressure to find common ground will build.
Subramanyan suggests that major global financial bodies like the G20, the Financial Stability Board, and the Bank for International Settlements (BIS) are perfectly capable of creating a set of baseline standards for things like reserves, disclosure, and risk mitigation. It will be a complex process, but it’s a necessary one.
Which Set of Rules Will Win?
So, if a global standard is on the horizon, which set of rules will serve as the template?
Das believes the U.S.’s GENIUS Act will “shape global standards by market weight.” Its structured approach to reserves and issuer accountability is a template that other countries can easily replicate.
However, Subramanyan adds that the highest standards may prevail. The banking and payments industry tends to adopt the most stringent regulations for its cross-border operations. This means that Hong Kong’s “conservative approach may set a global norm, despite the limited number of licenses issued.”
In the end, while major financial hubs are likely to eventually reach a consensus on stablecoin regulation, it’s not going to happen overnight. In the meantime, the current regulatory patchwork will continue to favor a handful of large, well-funded players. For smaller stablecoin projects, the message is clear: the cost of playing in the big leagues is about to get a whole lot higher.
Disclaimer
The information provided in this article is for general informational and educational purposes only. It does not constitute financial, investment, legal, or other professional advice. The value of cryptocurrencies is highly volatile, and you could lose all of your investment. You should always conduct your own research and consult with a qualified professional before making any investment decisions.
