Following the recent focus on two major regulatory frameworks—the Guiding and Establishing National Innovation for U.S. Stablecoins Act (known as the GENIUS Act) in the United States, and Regulation (EU) 2023/1114 of the European Parliament and of the Council of May 31, 2023, on markets in crypto-assets in the European Union—this White Paper delineates the new regulatory landscape for stablecoins in the United States and in the European Union. In addition, it includes a comparative outlook with the United Kingdom, Hong Kong, and the United Arab Emirates, while also assessing the potential impact of such regulation on stablecoins, legal challenges, and market opportunities.
INTRODUCTION
Often described as the new backbone of global finance by industry advocates, stablecoins seem poised to assume a prominent role in online currency exchange across the globe. In 2024, the total global stablecoin transfer volume reached an amount of $27.6 trillion in total, surpassing the combined transaction volumes of Visa and Mastercard.1
Latest data shows that, as of June 2025, the stablecoin total market capitalization reached a new all-time high of $251 billion, marking the 21st consecutive month of growth2 as far as stablecoin market capitalization is concerned.
Stablecoins can be defined as a form of digital currency on a blockchain network that are pegged to a reference asset, typically a fiat currency such as the U.S. dollar, and thereby designed to maintain a "stable" value.
MAJOR CLASSIFICATIONS
Stablecoins can be grouped into five major categories:
Fiat-Backed Stablecoins
Fiat-backed stablecoins are backed by reserves of fiat currency (e.g. the U.S. dollar or euro) and a pool of highly liquid assets held in reserve by a central entity, ensuring that the stablecoin maintains a 1:1 peg with the reference asset, i.e., an official currency like the U.S. dollar or euro. The two largest fiat-backed stablecoins by market capitalization are the USDC and USDT.
A particular sub-category of fiat-backed stablecoins are "e-money tokens," i.e., commercial bank money in the form of electronic money that is issued by a regulated entity fully backed by a reserve pool subject to regulatory requirements, and which grants the holder a statutory claim for redemption at par.
Crypto-Backed Stablecoins
Crypto-backed stablecoins are backed by a reserve of other cryptocurrencies. Smart contracts are used to maintain the stability of the stablecoin by adjusting the supply of the collateralized cryptocurrency based on demand. Examples include BitUSD and WBTC.
Algorithmic Stablecoins
Algorithmic stablecoins do not rely on collateral backing and, instead, use mechanisms such as algorithmic buy and sell orders to stabilize the price. This approach is often referred to as seigniorage-style stabilization, a concept borrowed from traditional monetary policy, where a central authority adjusts the money supply to maintain value. Examples include Pax Dollar (USDP) and DAI.
Commodity-Backed Stablecoins
Commodity-backed stablecoins are supported by reserves of physical commodities, such as gold, silver, oil, or other physical assets. Each stablecoin issued corresponds to a specific amount of the commodity, ensuring that the stablecoin's value is pegged to the real-world market price of the underlying asset. Examples include PAX Gold (PAXG) and Tether Gold (XAUT).
Basket-Pegged Stablecoins
These stablecoins derive their value from a basket of assets rather than a single reserve currency or commodity. A basketpegged approach can include a combination of fiat currencies, cryptocurrencies, or commodities. Librae is an example.
WHY ARE STABLECOINS POPULAR?
In addition to being attractive to governments because stablecoin issuers are large-volume investors of government bonds, stablecoins deliver multiple valuable advantages to users, including the following.
Stability
As its name suggests, stablecoins are designed to maintain a stable value, providing users with a reliable method for money storage and day-to-day transaction purposes, without the volatility risk traditionally associated with cryptocurrencies.
Fast, Low-Cost Transactions
Given that stablecoins are native blockchain-based instruments like cryptocurrencies, stablecoin transactions can be processed quickly, often within minutes, as compared to traditional banking systems that may take several days to settle, especially for international transactions. These attributes make stablecoins a valuable replacement option for traditional remittance platforms. Transaction fees for stablecoins are also generally lower than those for credit cards and other traditional payment methods.
24/7 Global Accessibility
Requiring nothing more than a crypto wallet and an internet connection, users can access stablecoins at all times throughout the day without requiring assistance from banks and alternative financial institutions. This also creates new possibilities allowing for payments on financial instruments outside of banking hours. For example, investors could redeem a money market fund investment on a weekend.
Atomic Swaps
With stablecoins running on blockchains, they also enable immediate payment for delivery against other digital assets (including financial instruments) that are on the blockchain using atomic swaps and smart contracts.
Global Financial Inclusion
For users in developing economies or underbanked regions, the use of stablecoins may enhance financial inclusion and boost overseas payments in general and remittances in particular.
Transparency
Blockchain technology ensures that all stablecoin transactions are transparent. Every transaction recorded on a public ledger is traceable and auditable.
WHAT ARE THE RISKS ASSOCIATED WITH STABLECOINS?
Notwithstanding their popularity, stablecoins also pose the following risks.
Counterparty Risks
For stablecoins to remain stable, the issuer of a stablecoin must make an enforceable commitment to buy back the stablecoin at the current value of the asset to which it is pegged. It must also commit to hold sufficient assets as collateral backing the stablecoins in circulation that can be liquidated quickly, so that the stablecoins can be redeemed at any time at the value of the reference assets. The risks stablecoins could pose to consumers or to markets if they are not adequately collateralized is a major concern to regulators.
Technological Risks
Centralized stablecoins face risks associated with the storage or custody of reserves and issuance controls. If the infrastructure of stablecoin issuers or their custodians is compromised, access to reserve funds may be breached and/or unauthorized tokens could be minted. These breaches can undermine public confidence in the stablecoin's backing and potentially trigger market-wide instability.
Regulatory Risk
Despite the increasing adoption of legislation addressing the creation, distribution, and trading of stablecoins around the world, the regulatory environment for stablecoins is still evolving, creating a broad range of different types of stablecoins that may not be easily comparable. Not all governments and financial authorities agree on the best form of crypto asset to preserve global financial stability. Along with fast-growing stablecoins initiatives from the private sector, some central banks are also in the ongoing process of developing policies for stablecoins or other digital currencies.
De-Pegging Risk
Deviation from the pegged value is one of the most significant risks for stablecoins, in particular for algorithmic stablecoins. The de-pegging risk can be triggered in rare situations where stablecoins lose their value relationship due to market disasters or operational breakdowns. Recent history provides examples of how stablecoin vulnerabilities can snowball through the crypto ecosystem. For instance, the collapse of TerraUSD (UST) in May 2022 demonstrated how algorithmic stablecoins can lose their peg during market stress. UST lost its peg due to a sharp drop in demand and external market conditions. The system could not restore the peg, leading to a collapse of both UST and its related cryptocurrency LUNA.
Money-Laundering Risk
This risk arises, in particular, as a consequence of peer-topeer transactions whereby neither of the parties is subject to anti-money laundering regulations (peer-to-peer transactions involving private individuals being an example).
THE GUIDING AND ESTABLISHING NATIONAL INNOVATION FOR U.S. STABLECOINS ACT ("GENIUS ACT")
Context Surrounding Adoption
In line with President Donald Trump's goal to make the country "the crypto capital of the world," the United States has witnessed intense recent regulatory and economic activity as far as stablecoins are concerned.
On April 4, 2025, the Division of Corporation Finance ("Division") of the U.S. Securities and Exchange Commission ("SEC") issued a statement on stablecoins to clarify that the Division did not consider certain "covered stablecoins" to be securities under the federal securities laws, effectively clarifying that "covered stablecoins" (defined by the SEC as "crypto assets designed and marketed for use as a means of making payments, transmitting money, or storing value") were not subject to securities regulations.
On May 27, 2025, a stablecoin market leader filed for an initial public offering ("IPO") on the New York Stock Exchange ("NYSE"). The expected IPO price was between $24 and $26 per share, and the IPO, which took place on June 5, 2025, was subsequently priced at $31 per share. The IPO vastly outperformed expectations as share prices immediately soared by 168% and have remained significantly higher than the offering price since. The closing price on the NYSE on July 21, 2025, was $210.10 per share.
As of June 2025, it was also estimated that the current supply of stablecoins in the United States was equal to just under 10% of U.S. currency in circulation.3
The sponsors of the GENIUS Act also estimate that by 2030, stablecoin issuers may collectively become the largest holders of U.S. Treasury securities, surpassing foreign central banks.
U.S. Congressional Action
On June 17, 2025, the U.S. Senate passed the GENIUS Act with a bipartisan vote of 68–30, signaling broad political support for stablecoin legislation. This passage followed a successful cloture vote of 66–32 on May 19, 2025.
By a 308–122 vote in the U.S. House of Representatives (the "House"), the GENIUS Act cleared both chambers of Congress and was signed into law by President Trump on July 18, 2025. At around the same time, the House also passed the Digital Asset Market Clarity Act ("CLARITY Act") via a bipartisan vote of 294–134. The CLARITY Act would create a regulatory framework for digital assets, including both digital securities and digital commodities, by clarifying the roles of the SEC and Commodity Futures Trading Commission with respect to such products based not only on how they are originally sold but also on how they function. The Act now moves to the Senate, where significant amendments are possible given that commentators expect high scrutiny.
Key Provisions
Permitted Payment Stablecoin Issuers ("PPSIs"). The GENIUS Act restricts stablecoin issuances to PPSIs, which include subsidiaries of federally insured depository institutions, federally licensed nonbank entities holding a specialized license from the Office of the Comptroller of the Currency, and statequalified issuers—entities established under state law and approved to issue payment stablecoins by a state payment stablecoin regulator.
A Dual Regulatory Structure. The GENIUS Act introduces a dualtrack framework that permits certain smaller issuers—those with less than $10 billion in consolidated outstanding stablecoin issuance—to opt into a state-level regulatory regime, provided that regime is certified as "substantially similar" to the federal framework. Once a state-qualified issuer exceeds the $10 billion cap, it must either transition to the federal regime within 360 days or obtain a waiver from federal regulators to remain under state supervision. This waiver may be granted based on factors such as the issuer's capitalization, regulatory history, and the strength of the state framework.
Reserve and Transparency Requirements. The GENIUS Act provides for stablecoins to be backed by a 1:1 reserve by U.S. dollars, U.S. short-term treasuries, or similarly liquid, high-quality assets. A PPSI must also disclose, on a monthly basis, the total number of its outstanding payment stablecoins and the amount and composition of its reserves, including the average tenor and geographic location of custody of each category of reserve instruments. Each PPSI is also required, on a monthly basis, to have its previous month-end report examined by a registered public accounting firm. Concurrently, the chief executive officer and chief financial officer of a PPSI will be required, on a monthly basis, to certify the accuracy of its monthly report. PPSIs will also have to demonstrate compliance with antimoney laundering and sanctions requirements.
The GENIUS Act also provides that claims of holders of stablecoin against the reserves backing the stablecoin have priority over all other claims in the event of an insolvency of the stablecoin issuer.
Limitation on Activities. The GENIUS Act provides that PPSIs may only: (i) issue payment stablecoins; (ii) redeem payment stablecoins; (iii) manage related reserves (including purchasing and holding reserve assets); (iv) provide custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins; and (v) undertake other functions that directly support the work of issuing and redeeming payment stablecoins. PPSIs also may not pledge or rehypothecate the required reserves except for very limited purposes.
Footnotes
1 Feingold, S. (March 26, 2025), Stablecoin surge: Here's why reserve-backed cryptocurrencies are on the rise, World Economic Forum.
2 CoinDesk Data (June 27, 2025), Stablecoins & CBDCs Report (June 2025).
3 Yue, F. (June 11, 2025), Stablecoin supply is growing fast. Here's how it compares to cash, Morningstar.
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