This blog offers a preview of our series, “The Road to Regulation.” Download the full Part 2 chapter here.
TL;DR
- Stablecoins have evolved beyond instruments for crypto trading to address real-world inefficiencies in payments and settlements, attracting increased attention from traditional financial institutions, corporates and regulators.
- As of July 2025, stablecoin regulation is fully or partially in force in 11 of our top 25 jurisdictions. Regulatory progress has been swifter in advanced economies, whereas many emerging economies have yet to propose regulations. The GENIUS Act in the US provides crucial regulatory clarity for USD-denominated stablecoins and will likely amplify global policy momentum.
- National frameworks have thus far focused primarily on reserve requirements, redemption rights, and consumer protection. Issuers will need to navigate varying levels of regulatory stringency, jurisdiction-specific priorities, and cross-border fragmentation.
- Financial integrity is rapidly becoming a critical focus, and both issuers and regulators are leveraging blockchain transparency to enhance AML/CFT oversight.
Stablecoins are at an inflection point. Today, stablecoins account for trillions of dollars in on-chain value transferred each month. But the broadening interest in stablecoins goes beyond their origins as crypto trading tools to their potential in solving persistent inefficiencies in traditional finance. For instance, cross-border payments remain slow, costly, and exclusionary — especially for vulnerable populations. Financial markets continue to be held back by fragmented trading and settlement infrastructure, a lack of interoperability, and a reliance on manual processes.
The promise of programmable money
Programmable and intrinsically borderless, stablecoins offer an opportunity to make finance work better for consumers and businesses. Their promise includes streamlined settlement, decreased reliance on legacy intermediaries, and lower transaction costs. More broadly, they are emerging as foundational infrastructure for next-generation financial products, from on-chain repo markets to programmable treasury instruments.
This potential hasn’t gone unnoticed. Traditional financial institutions and fintech companies are increasingly entering the space, as evidenced by recent developments – Stripe’s broadening suite of stablecoin services; Mastercard and Visa’s strategic partnerships to enhance stablecoin transaction capabilities; and the range of large corporates and banks considering stablecoin issuance or facilitation.
The regulatory response
Regulation will define the next phase of the stablecoin journey. International bodies, from the Financial Stability Board to the Financial Action Task Force, have placed stablecoins high on their agendas. National regulators in the EU and Asia are creating and implementing domestic regimes that will significantly impact where new issuers emerge and how existing issuers distribute their assets.
As of July 2025, stablecoin issuer regulation is either fully or partially in force in 11 of our top 25 jurisdictions. Notably, the majority of jurisdictions that have implemented or proposed rules are advanced economies. Most emerging economies within this top 25 have yet to propose stablecoin regulation, a notable trend given that these jurisdictions are where stablecoins are likely to find the most grassroots traction.
The passage of the GENIUS Act in the United States marks a particular milestone. This Act requires stablecoins to be fully backed by high-quality, liquid assets; provides for timely redemption and appropriate disclosures; and prohibits the payment of interest to holders. It also classifies stablecoin issuers as financial institutions under the Banking Secrecy Act, subjecting them to AML/CFT requirements, and requires foreign issuers to be subject to a comparable regulatory regime in order to issue stablecoins in the United States. With overarching legislation in place, attention will now turn to the US Treasury and regulators which will have to develop more detailed regulations to bring GENIUS into force. Developments in the United States will have international spillovers, accelerating policy momentum in jurisdictions where regulation is still under development.
Challenges on the road ahead
While potentially transformative, stablecoins pose a number of risks that policymakers will need to address. These include risks to consumers if tokens fail to maintain their peg or otherwise expose holders to unexpected losses; financial risks where stablecoins are used for illicit purposes, such as money laundering; and concerns for monetary sovereignty and financial stability when stablecoins become systemically important.
Thus far, regulatory frameworks have primarily centered on value stability. Fiat-referenced stablecoins are generally required to be fully backed by liquid and high-quality reserves, which are segregated from operational assets and held in a bankruptcy-remote structure. Issuers are typically required to guarantee the redemption of fiat-referenced tokens at par value within specified timeframes. Additionally, in most jurisdictions, issuers are prohibited from paying interest or other financial incentives to stablecoin holders.
At a high level, there is substantial similarity across national frameworks; however, important differences remain that stablecoin issuers will need to take note of when considering their market entry and licensing strategies.
- Differences in stringency: Directionally similar, national regimes differ in ways that can have an operational impact. For instance, regulators vary in the proportion of yield-bearing assets they permit in reserve composition (e.g., in the EU, at least 30% of reserves backing electronic money tokens must be held as bank deposits), and this directly affects profitability. Rules on redemption timeframes also vary, with issuers having to meet requests by the next business day in Hong Kong versus five business days in Singapore.
- Jurisdiction-specific features: Issuers will need to note distinct features of domestic regimes – for instance, the treatment of stablecoins from issuers not regulated in the jurisdiction; the degree of overlap between stablecoin rules and existing financial product regimes; and, in some cases, additional measures based on the currency to which the stablecoin is pegged. The differences between regimes in the EU, Japan, Hong Kong, Singapore and the UK (as proposed) can have material licensing implications.
- Regulatory fragmentation: National regimes can affect where a prospective issuer commences operations. But any issuer with international circulation in mind will need to navigate and reconcile the differences above. This can create significant operational complexity, particularly when requirements conflict across jurisdictions.
The next frontier: Financial integrity
Beyond value stability, financial integrity has emerged as a critical focus area. Since 2022, the majority of illicit crypto flows have been denominated in stablecoins — a by-product of the growing accessibility and liquidity of these assets. This can be an important inhibitor to market development, as policymakers and financial institutions will remain cautious about stablecoin usage unless their legal and reputational risks are well-managed.
However, public blockchains offer new opportunities for risk management. Traditional fiat-based AML/CFT measures focus on ensuring obliged entities manage risks from their direct counterparties. However, on public ledgers, stablecoin issuers and regulators have visibility into every token transfer in the secondary market, allowing them to monitor legitimate and illicit usage trends over time and devise responses.
Regulators are beginning to recognise this unprecedented transparency, with the Hong Kong Monetary Authority leading the way by requiring issuers to monitor secondary market activity. In tandem, leading issuers are already moving ahead to adopt asset intelligence tools. In 2024, Tether collaborated with Chainalysis to develop a customisable solution for monitoring secondary market activity.
Looking ahead
While the stablecoin market remains relatively nascent, its trajectory is becoming clearer:
- Regulatory considerations will be deeply embedded in any stablecoin business model.
- The future market structure may look quite different from today’s, with the potential emergence of local currency stablecoins.
- Demands for real-time financial crime risk mitigation will grow.
How Chainalysis can help
Crypto continues to gain global traction as an investment asset and medium of exchange. Unlocking its full potential requires strong consumer protections and compliance standards comparable to those for fiat currency. As crypto regulation evolves, stakeholders — from regulators to financial institutions to crypto-native platforms — need timely, actionable insights to navigate the changing landscape.
Chainalysis sits at the intersection of blockchain data and regulatory expertise, supporting the growth of resilient markets. Our suite of crypto compliance solutions empower stablecoin issuers to meet compliance demands and respond to illicit activity – from undertaking due diligence on direct counterparties through VASP risking and address screening, to monitoring issuance and redemption transactions with Chainalysis KYT, to ecosystem monitoring with Chainalysis Sentinel. Through our products, services, training and research, we help public and private sector leaders make informed decisions and meet emerging regulatory demands.
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