The world of cryptocurrency regulation is a diverse tapestry. The path to coherent and unified rules has been a confusing one, but we are witnessing the emergence of a global consensus on the rules for fiat-backed stablecoins. Both industry and government structures are slowly coalescing around the standards required for stablecoins to serve as a vital pillar in the financial services and payments sectors.
In this movement towards harmony, jurisdictions such as the European Union (EU) and the United Kingdom (UK) have played a key role. The soon-to-be unveiled EU Comprehensive Cryptocurrency Regulatory Framework highlights the importance of stablecoins. Similarly, last year’s UK government announcement unveiled proposals to regulate the issuance, payment and holding of fiat-backed stablecoins.
The United States also appears to be gaining momentum in its quest to pass stablecoin legislation.
The chorus is joined by international organizations and standards bodies. The Financial Stability Board (FSB) is due to publish high-level recommendations on the regulation, supervision and oversight of stablecoins by July. G20 finance ministers and central banks have begun discussing internationally agreed rules for cryptocurrencies, with a focus on stablecoins.
So what does this evolving consensus include? While a generally accepted international standard for stablecoin mechanisms remains in its infancy, fundamental principles related to transparency, consumer protection, and risk management are resonating with policy makers, regulators, and industry professionals. These principles are consistent with the Stellar Development Foundation guidelines for stablecoins, which emphasize:
- Stablecoin reserves must match the currency of the token, subject to public, regular and independent third party validation. Reserves must be at least 100% backed in fiat or a mixture of fiat and high-quality liquid assets held in regulated financial institutions.
- Stablecoin issuers must guarantee 1:1 redemption, segregate client and corporate funds, and comply with transparency and disclosure requirements.
- The minting and burning of stablecoins should reflect reserve assets as accurately as possible, preferably through automation.
Given the borderless nature of blockchain and the crucial role of stablecoins in cross-border transactions, international compliance with these principles and standards is a must. Stablecoins have the potential to revolutionize global payments by leveraging the accessibility, speed, and transparency of blockchain technology while maintaining the stability of fiat. However, this potential can only be exploited if there is an appropriate regulatory framework that promotes competition, innovation and consumer protection.