US leadership in crypto: The focus is on stablecoins | Opinion

A study by Lambis Dionysopoulos and Andrew Urquhart highlights the history, growth, and importance of stablecoins since they were launched 10 years ago as both a medium of exchange and a store of value, particularly in regions with monetary instability and/or limited access to the US dollar. The study details the use of stablecoins by businesses, financial institutions, and individuals for international cross-border payments, liquidity management, and protection against currency fluctuations in a swifter, more cost-effective way compared to those of traditional financial systems. According to this study, the accelerated adoption of stablecoins across the world is impacting the digital asset ecosystem as well as the financial system as a whole.

There are hundreds of different types of stablecoins in circulation, with the majority issued by Tether (USDT), followed by Circle USDC (USDC). These stablecoins derive their value through various mechanisms. Four categories of stablecoins/tokens are backed by real-world assets such as fiat, commodity, treasury bill, or digital assets, which are pegged to the value of traditional/fiat currencies, commodities, T-Bills or repos, or digital assets with varying degrees of collateral requirements. algorithmic stablecoins, on the other hand are backed by programmed trading mechanisms without relying on direct collateral. These models face challenges in maintaining long-term stability, as seen with the collapse of TerraUSD in 2022, according to a recent report titled “Stablecoins 101: Behind crypto’s most popular asset,” published on December 11, 2024, by Chainalysis.

William Quigley, a cryptocurrency and blockchain investor and co-founder of WAX.io blockchain and stablecoin Tether, states:

“Stablecoins will remain one of the fastest-growing areas in digital assets. Backing them with real-world assets, particularly U.S. Treasuries, has already proven successful, and I expect continued innovation in stablecoins unless if they are banned by world regulators.  Stablecoins  are here to stay and will likely drive the next phase of crypto adoption.” 

President Donald Trump and his administration seem to agree with this sentiment. Because stablecoins [and altcoins] issuance and use is rising around the world, with the market projected to reach $3 trillion within the next five years, capturing a larger share of the digital asset market, surpassing traditionally dominant assets like Bitcoin (BTC) and Ethereum (ETH), particularly in the Middle East and North Africa with Türkiye leading the world in stablecoin trading volume as a percentage of GDP by a significant margin according to the Chinalysis report. 

With the US lagging behind in the adoption of stablecoins compared to other countries around the world, according to Chainalysis’s Geography of Cryptocurrency 2024, President Donald Trump’s World Liberty Financial platform has a mission to “make crypto and America great” by enabling users to borrow, lend and invest in digital assets without depending on traditional banking systems and by strongly positioning US-pegged stablecoins as the foundation for global financial settlements. As stablecoins “will broaden the reach of the dollar across the globe and make it even more of a reserve currency than it is now” said Federal Reserve Bank Governor Christopher Waller, chair of the Fed Board’s payments subcommittee.

As Vivek Ramsar—the CEO of etherealize.io, which connects institutions to the largest, secure, and open blockchain eco-friendly Ethereum ecosystem around the world—explains:

“Stablecoins were the first instance of real product-market fit and also ended up being of strategic importance to the US, as stablecoins allow for the USD to be digitally exported to the rest of the world. Stablecoins are also in the top 20 largest holders of US Treasuries globally, increasing their structural importance. Moving dollars via stablecoins is much more efficient: faster, cheaper, automatic settlement than existing methods. The vast majority of stablecoins exist in the Ethereum economy – similar to the tokenized asset landscape.”

Due to their rapid adoption and growing role in the global financial system, stablecoins emerged as the most dynamic asset class of the year, according to a 2024 report by a16z, garnering attention and becoming a priority for world regulators.

The US stablecoin legislation proposals

The US has introduced two stablecoin bills at the Federal level—the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act in the House and the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in the Senate—seeking to regulate stablecoin issuers with licensing requirements, risk management rules, and 1:1 reserve/collateral backing. It should be noted that State-specific regulation varies across the U.S., with most states lacking regulatory frameworks separate from the federal level.

In a press release on the draft STABLE Act, Representatives Hill and Steil indicated their willingness to work with their Senate colleagues to pass payment stablecoin legislation since the House discussion draft generally aligns with the GENIUS Act.

The GENIUS Act introduced in the Senate:

• Prohibits the issuance of a payment stablecoin in the United States by any person that is not a “permitted payment stablecoin issuer.” 
• Defines “payment stablecoin” as a digital asset that maintains a fixed value through backing by fiat currency or other secure reserves.
• Imposes federal standards on permitted payment stablecoin issuers, including requirements for fully backed reserves, segregation of reserves, monthly certification, and capital and liquidity requirements, as well as a prohibition on rehypothecation.
• Allows state-regulated payment stablecoin issuers to issue stablecoins, but only if the regulatory regime that applies is substantially similar to the federal regime.
• Gives the federal banking agencies enforcement authority over permitted payment stablecoin issuers that is analogous to the Federal Deposit Insurance Act over insured depository institutions, their holding companies and institution-affiliated parties.
• Imposes customer protection standards on persons that provide custody services for permitted payment stablecoins, including supervision and regulation, segregation of funds, commingling prohibition standards, and monthly audited reports on fiat reserves.
• Prohibits the federal banking agencies, NCUA, and SEC from requiring an asset held in custody to be treated as a liability. The bill also amends federal securities laws to make clear that payment stablecoins are not securities.

Currently, stablecoins are regulated in the following countries/regions:

Country/ Region	Regulator	Proposed	Final
EU	MiCA		X
Hong Kong	Hong Kong Monetary Authority	X
Japan	Payment Services Act		X
MENA – UAE	Central Bank of the United Arab Emirates		X
Russia	Central Bank		X
UK	FCA	X
USA	US Treasury Department	X

The TABLE is from Stablecoins, Chapter 7, page 51, Sustainably Investing in Digital Assets Globally,  by Selva Ozelli Esq, CPA

In countries with a regulatory framework, favorable government initiatives, and web3-friendly policies, “I expect continued innovation in stablecoins collateralized by a broader range of financial instruments. While this expansion is promising, issuers must carefully consider liquidity constraints—projects that fail to do so have already faced challenges,” explained Rhett Shipp, CEO of Avant, an onchain dollar provider.

For example, recently, in the EU, Kraken announced that it would delist Tether’s USDT and four other stablecoins to comply with  Markets in Crypto-Assets Regulations. In Brazil, the new president of the Central Bank of Brazil, Roberto Campos Neto, has linked the rapid growth of stablecoins with tax evasion and money laundering. In the US,  JPMorgan analysts estimate that only 66%–83% of Tether’s reserves currently comply with proposed US stablecoin regulations, as The Block reported. In China, two men were imprisoned for using the Tether’s USDT to circumvent foreign exchange controls. They received five-year sentences after processing RMB 30 million ($4.1m) in transactions.

Elliptic predicts that 2025 will witness a proliferation of regulatory initiatives around the world to support the responsible development of stablecoins and tokenization. 

This article first appeared at crypto.news