Sarah Green, Head of Digital Assets and Trade Finance, D2 Legal Technology.
The power and the reach of the Stablecoin has not gone unnoticed by governments and by national banks. Stablecoin regulation is today’s hot topic, with jurisdictions looking at balancing the promise of this innovation with consumer protection, anti-money laundering and counter terrorist financing concerns. The detail is bedevilling, but needs grasping to ensure that Stablecoins fulfil their seismic potential in the world of payments, as D2 Legal Technology’s Head of Trade Finance and Digital Assets, Professor Sarah Green, explores.
Cryptocurrencies without volatility
The Distributed Ledger Technology (DLT) solution has been lying in wait for Stablecoins. Cryptocurrencies without the inherent volatility, Stablecoins benefit from the speedy settlement, transactional transparency, and decentralised operations of DLT-enabled payment systems, and are significantly less prone to the drawbacks that can detract from the appeal and usability of other cryptocurrencies.
Stablecoins are designed to maintain a stable value by being pegged either to a fiat currency like the US dollar, or to a high quality real world asset like gold. Without the wild value fluctuations associated with traditional cryptocurrencies, they are a means of both increasing user confidence and reducing friction in transactions: in so doing, they have the potential to transform the payments industry.
Perhaps the most significant feature of Stablecoins is the fact that they can facilitate atomic settlement: one that is conditional on delivery and payment both occurring at the same time by allowing for the delivery versus payment (or DvP) method to extend across multiple linked transactions. DLT also allows for instant settlement and, whilst this might not be regarded as an advantage in all contexts, its possibility expands the functionality of future payment systems.
MiCA, GENUIS & STABLE
To date, the most advanced large-scale regime is that of the Markets in Crypto-Assets Regulation (MiCA) – the EU’s regulatory framework, which came into force at the end of 2024. This regulation is the most advanced in terms of its articulation and implementation, and is amongst the most comprehensive frameworks due to its applicability to a broad range of crypto-assets, expressly including securities and e-money, and to crypto-asset service providers (CASPs) who operate in Europe, regardless of where they are based or registered.
MiCA requires Stablecoin issuers to acquire regulatory approval and to maintain a sufficiently liquid reserve at a 1:1 ratio, with part of that reserve held in deposits. It will be enforced by the European Securities and Markets Authority (ESMA) and The European Banking Authority (EBA).
In the US, there are currently two proposed means of dealing with Stablecoins, both narrower in their remit than MiCA since they apply specifically to Stablecoins, as opposed to crypto-assets more generally: The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act and the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act.
Both bills are similar in many respects, although the STABLE Act is more accommodating of foreign issuers and would permit domestic issuers to remain under state (as opposed to federal) regulation regardless of their size. Both propose that a 1:1, segregated reserve ratio of high quality assets be required, as well as a federal licence / certification and regular audits. Both also aim to ensure that Stablecoins are redeemable swiftly and at their face value. For both, the principal regulatory authorities concerned will be the Federal Reserve, OCC, SEC, CFTC and FinCEN.
In the UK, the Financial Conduct Authority (FCA) and the Bank of England (BofE) have published proposals (on which they have been consulting since March 2025) outlining the regulation of fiat-backed Stablecoins. In line with MiCA, STABLE and GENIUS, these proposals deal with the authorisation of issuers and with their reserve, liquidity, and AML and CTF requirements.
The UK proposals aim to bring Stablecoins within the existing general financial services regulatory framework (under the Financial Services and Markets Act 2000 (FSMA) rather than, as MiCA does, set up a bespoke and native legal framework for crypto-assets.
What’s next?
It is too early to say which is the better approach, or even whether the distinctions between these (proposed) regulations will make any difference in practice. What is both notable and reassuring, however, is that there are several common themes: regulator authorisation, minimum reserves, prohibition of interest payments and subjection to AML and CTF measures.
However they evolve, it is crucial that legal and regulatory clarity is achieved as swiftly, and in as coordinated a way, as possible.
