Stablecoins have emerged as a practical alternative to the traditional banking system for payments and remittances. These digital coins seek to maintain stable value by pegging to currencies like the dollar, combining blockchain technology with reserve backing. They bring opportunities for more accessible and efficient financial intermediation, but also raise concerns about monetary control, illicit transactions, user protection and financial stability.
However, a fundamental divide has emerged between the US approach to the regulation of stablecoins, which encourages private sector innovation, and the European approach, which prioritises sovereign monetary and regulatory control. This divergence in approach could profoundly reshape the global financial structure.
Regulatory and policy concerns
The growing use of stablecoins in finance is raising a complex set of policy concerns. These include the risk of undermining official currencies as more transactions migrate to stablecoin platforms, their potential use in illicit financial flows, gaps in safeguards for retail users and unresolved questions surrounding the taxation of returns on cryptoassets.
Regulatory concerns are arising from the increasing role of stablecoins in financial intermediation. Central banks and regulators now consider large stablecoin issuers as systemically important institutions. The US Financial Stability Oversight Council 2024 Annual Report noted that stablecoins ‘continue to represent a potential risk to financial stability because they are acutely vulnerable to runs absent appropriate risk management standards’.
Concerns were highlighted by the May 2022 collapse of TerraUSD (which lost its dollar peg entirely) and the November 2022 failure of the FTX exchange, as well as brief de-pegging events affecting even major stablecoins like USDC under banking sector stress in March 2023. Such events can have systemic implications given that stablecoins’ integration with securities markets, custody chains and payment processors creates links to the core financial infrastructure.
A related concern is that weak reserve management by stablecoin issuers or trading platforms could trigger collateral fire sales during mass redemptions, driving down the cost of assets and potentially destabilising other parts of the financial markets.
To date, however, progress in addressing these risks has been uneven, slowed by the absence of clear regulatory mandates over stablecoin activities and by diverging views among policy-makers and agencies on the dangers and potential benefits of this rapidly evolving ecosystem.
Transatlantic divergence
The transatlantic divergence in the regulation of stablecoins widened in early 2025. The US, under the Donald Trump administration, views stablecoins primarily as vehicles for innovation – tools to expand consumer choice and provide more efficient forms of financial intermediation, with the additional benefit that the rapidly rising use of dollar stablecoins helps to bolster dollar dominance globally. An executive order issued in January 2025 promoted stablecoins while explicitly prohibiting central bank digital currencies in the US.
Meanwhile, the Generating Revenue and Enhancing National Investment by Using Stablecoins Act, which has just been passed by the Senate, proposes a light touch but structured framework for stablecoins. The Act mandates that stablecoins be backed 1:1 with safe, liquid assets and that issuers undergo regular audits and adhere to disclosure requirements.
However, it carves out a separate regime for smaller issuers – with less than $10bn in outstanding stablecoins – allowing them to operate under state-level oversight. This has raised concerns about regulatory arbitrage and the potential for inconsistent standards across jurisdictions, and the potential for systemic risk from a growing multitude of alternative forms of digital money.
Europe is taking the opposite approach, prioritising tighter control. This is not just a technical difference from the US – rather, it reflects competing visions about who should control the future of finance: private companies or government institutions. The European Central Bank’s concerns focus on monetary sovereignty and the ability to implement effective monetary policy in a digital world. The ECB is accelerating the development of a digital euro to counter the growth of US stablecoins, with pilot testing of a coordinated digital payments platform expected by the end of 2025.
At the same time, EU regulations treat stablecoin issuers much like banks, with equivalent capital and operational rules. The European Union’s Markets in Crypto-Assets regulation, adopted in 2024, imposes stricter rules than the US GENIUS Act. It requires large stablecoin issuers to maintain strong capital buffers, establish clear liability frameworks and implement tight operational controls. MiCA also seeks to limit the spread of non-euro stablecoins, particularly dollar-denominated ones, by increasing compliance costs and making authorisation more challenging for foreign issuers.
What this means
Diverging approaches to regulating stablecoins risk fragmenting the global digital finance landscape, with a dollar-based stablecoin system in the US, a state-backed European digital euro regime and a mix of regional approaches elsewhere. These competing models risk disrupting the transmission of monetary policy, cross-border capital flows and regulatory coherence.
Stablecoins must now be considered an integral part of the core financial architecture. A coordinated international response is needed before their scale outpaces the capacity of any single jurisdiction to manage the risks they pose to monetary and financial stability.
Udaibir Das is a Visiting Professor at the National Council of Applied Economic Research, Senior Non-Resident Adviser at the Bank of England, Senior Adviser of the International Forum for Sovereign Wealth Funds, and Distinguished Fellow at the Observer Research Foundation America.
This is an edited version of an article first published by Econofact.
