Stablecoins Part 2: Global Policy and Regulation(04.08.2025)
Stablecoins are fast becoming a central feature of the digital economy, bridging the gap between traditional finance and decentralized systems. As their use cases evolve — from cross-border payments to DeFi and tokenized assets — stablecoins have drawn the attention of global regulators aiming to balance innovation with security, transparency, and financial integrity. Following our previous article on how stablecoins work, this second installment dives into the diverse regulatory approaches emerging across the world. From Europe’s MiCA to Singapore’s stablecoin framework, the global patchwork of policy is shaping the future of digital money.
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Global Regulatory Landscape
European Union (EU)
The Markets in Crypto-Assets Regulation (MiCA) marks a major step forward in creating a harmonized framework across the EU. Effective since June 30, 2024, for stablecoins, and rolling out to crypto-asset service providers by December, MiCA introduces two stablecoin classes:
- Asset-Referenced Tokens (ARTs), backed by multiple assets (e.g., currencies, commodities)
- E-Money Tokens (EMTs), pegged to a single fiat currency
Issuers must adhere to licensing, reserve management, governance, and redemption rules. "Significant" stablecoins face stricter oversight and capital requirements, with direct supervision by the European Banking Authority (EBA). While MiCA is comprehensive, national implementation inconsistencies still need ironing out for smooth execution.
Singapore
The Monetary Authority of Singapore (MAS) has finalized its framework for single-currency stablecoins (SCS) tied to the SGD or G10 currencies. Issuers can attain the “MAS-regulated stablecoin” designation by meeting criteria around value stability, capital adequacy, redemptions, and disclosures — offering a model focused on prudence and consumer protection.
Hong Kong
Operating under a unique regulatory regime, Hong Kong has taken a forward-looking approach via the Hong Kong Monetary Authority (HKMA). Through its regulatory sandbox, the HKMA invites market players to test and refine their stablecoin use cases. As of July 2024, three projects had entered the sandbox, promoting industry-regulator collaboration before full legislation is implemented.
Japan
As an early adopter, Japan allows banks, trust companies, and fund transfer services to issue fiat-backed stablecoins under strict rules. However, the market remains cautious, with no stablecoins listed on domestic exchanges. The Financial Services Agency (FSA) is actively refining policies to align with international developments.
United States
In the U.S., the regulatory picture is fragmented. Despite stablecoins like USDC and USDT gaining traction, a comprehensive legal framework remains elusive. A proposed stablecoin bill from 2023 aims to address transparency, reserves, and AML compliance but faces political and institutional hurdles. Until federal clarity emerges, oversight is largely driven by state-level initiatives and enforcement actions.
Illicit Activity and Regulatory Response
Stablecoins’ accessibility and speed make them attractive for both legitimate and illicit purposes. While less than 1% of on-chain transactions are estimated to be illicit, their misuse in money laundering, fraud, and sanctions evasion remains a concern.
Sanctions Evasion Risks
Some sanctioned entities leverage stablecoins to bypass traditional banking controls, taking advantage of pseudonymous transactions. Though large-scale evasion is limited by liquidity and blockchain traceability, small-scale abuse poses compliance challenges, especially in geopolitically sensitive areas.
Issuer Collaboration with Law Enforcement
Centralized issuers such as Tether (USDT) and Circle (USDC) actively collaborate with agencies like FinCEN, using tools like Chainalysis to monitor transactions. These issuers can freeze or burn coins associated with criminal wallets — a powerful tool to enforce compliance and recover stolen funds.
Which Stablecoins Can Be Frozen or Burned?
Centralized Stablecoins (USDT, USDC, BUSD, TUSD): Can be frozen or burned at issuer discretion.
Decentralized Stablecoins (DAI, FRAX, LUSD): Operate via smart contracts and DAOs, making them resistant to centralized control — and potentially more vulnerable to illicit misuse.
The Role of Blockchain Intelligence
Firms like Chainalysis play a key role in detecting criminal activity, tracing funds, and mapping wallet networks. Their data tools strengthen law enforcement capabilities and boost ecosystem trust, helping regulators and issuers alike respond swiftly to suspicious activity.
The Future of Stablecoins
Stablecoins hold immense potential to modernize financial services — especially in payments, remittances, and trade finance. As global regulations evolve, jurisdictions like the EU and Singapore provide models for innovation-friendly but secure frameworks. Still, challenges persist:
- Regulatory uncertainty in major markets like the U.S.
- Illicit use and AML concerns
- Reserve transparency and consumer trust
Yet, the promise of low-cost remittances, financial inclusion, and borderless commerce keeps stablecoins at the forefront of crypto-financial integration. As regulation matures and technology advances, stablecoins will likely play a defining role in bridging traditional and decentralized finance.
Summary
Stablecoins are no longer just a crypto curiosity — they are reshaping global finance and regulatory priorities. Countries around the world are developing their own approaches to balance innovation with safety, with the EU’s MiCA and Singapore’s MAS framework leading the charge. While illicit usage remains a concern, collaboration between issuers, regulators, and blockchain intelligence firms is helping to mitigate risks. With clearer regulations and stronger technology, stablecoins are poised to accelerate financial innovation across borders, creating new pathways for economic participation and digital finance.
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