Stablecoin laws aren’t aligned — and big fish benefit

Stablecoins have been regulated in different ways across the globe, raising concerns about their viability and possibly putting up barriers for newcomers

Europe’s framework, Markets in Crypto-Assets (MiCA), varies significantly from the US’s GENIUS Act. Both are distinct from Hong Kong’s own stablecoin rules, which were finalized just two weeks ago.

These three regulatory frameworks have provided clear standards for stablecoins. Reserve requirements, issuer licensing and permit schemes now have cut-and-dry conditions, which have undoubtedly made it easier for stablecoins to flourish.

But their differences are distinct enough to cause concern. According to Krishna Subramanyan, CEO of banking liaison firm Bruc Bond, stablecoins currently “run the risk of becoming jurisdiction-bound, limited in usability and trust outside specific regions.”

Stablecoin market capitalization is growing steadily as more countries adopt legislation. Source: DefiLlama ## “Competing models” of stablecoin law can impact viability

MiCA, GENIUS and Hong Kong’s Stablecoin Ordinance all offer diverging models for regulating stablecoins

Udaibir Saran Das, a Bretton Woods Committee member and visiting professor at the National Council of Economic Research, explained their differences to Cointelegraph. Essentially:

• MiCA permits non-bank issuers under the supervision of the European Banking Authority.
• GENIUS puts stablecoin issuance in the hands of banks and federally licensed entities.
• Hong Kong requires HKMA licensing and imposes strict requirements on who qualifies

These diverging laws mean that “issuers must build parallel compliance structures for each jurisdiction. This includes separate legal entities, audits and governance models, adding cost and operational friction,” Das explained.

“The operational friction comes from divergent reserve requirements, custody arrangements and Hong Kong’s holder-level Know Your Customer that forces wallet providers to rebuild their infrastructure. These frameworks represent competing models of monetary control,” he said

All these legal entities and reporting regimes are costly, and smaller stablecoin companies will find it harder to pay compliance costs, particularly if they operate across multiple regions. This could push smaller fish out of markets or force them to become part of an acquisition deal by larger firms

According to Subramanyan, this “compliance asymmetry” could concentrate market power and limit innovation. She said, “Over time, regulatory fragmentation won’t just raise costs but will define who can scale and who cannot.”

Das said that without mutual recognition of different stablecoin laws, the operational complexity of meeting multiple requirements, which include multiple licensing processes, parallel audited and fragmented technology, favors large, capitalized stablecoin issuers

“Consolidation pressure may be intentional,” he said.

Do global regulators want to align stablecoin laws?

Much of the rhetoric surrounding crypto regulations, whether for stablecoins, market framework laws or Bitcoin (BTC) reserves, is about making whatever jurisdiction or country the most competitive possible

Related: UK crypto hopes stall, but ‘encouraging signs’ are there

As the crypto industry in different countries jockey for primacy, Subramanyan said, “In the near term, competitive fragmentation will likely persist. Jurisdictions are positioning stablecoin regulation as a lever of economic diplomacy, seeking to attract capital, talent and technological leadership.”

GENIUS aims to make the US the “undisputed leader” in crypto. Source: The White HouseShe said Hong Kong, the UAE and Singapore all have comparative frameworks for stablecoins that stimulate adoption, while on the ground, they have licensing requirements unique to their jurisdiction, “offering much-needed initial protections to their nationals.”

This could all change as stablecoin adoption grows, as prominent crypto executives like Ripple CEO Brad Garlinghouse are predicting. Subramanyan said that as stablecoins become increasingly intertwined with payments, credit markets and capital flows, “risk will drive convergence.”

“The question is not whether coordination is politically desirable; it is whether financial stability can be maintained without it.”

She continued, “Pressure to align will rise as cross-border volumes increase and regulatory gaps begin to generate real economic externalities.”

Coordinating on these issues is tough, but possible. Subramanyan said that aligning stablecoin laws across multiple countries “requires operational frameworks for collaboration.”

Major banks and financial institutions like the Financial Stability Board, the Bank of International Settlements and the G20 “are well-positioned to define baseline standards for reserves, disclosures and risk mitigation.”

Das said that building supervisory colleges for cross-border stablecoins with shared Anti-Money Laundering protocols is “complex but necessary.”

“Without coordination, regulatory arbitrage becomes the dominant business model,” he said.

Which regulation will win out?

If regulation is both needed and possible, it still leaves the question of which regulatory regime will serve as an example for further regulation and cooperation

Das said that GENIUS won’t override existing laws but “will shape global standards through market weight.” The act’s supervision model, wherein the comptroller regulates non-bank stablecoin issuers, and existing regulators cover banks issuing stablecoins, is a template that other countries can repeat

Subramanyan added that “GENIUS is likely to influence regulatory thinking through its structured approach to reserves, redemption rights and issuer accountability. In doing so, it will help to shape global expectations and inform cross-border compatibility decisions.”

Banks and payment systems are also inclined to choose the highest standard for cross-border operations, which means Hong Kong’s “conservative approach could set global norms despite issuing a limited number of licenses,” said Das.

It is possible that major financial centers will reach a consensus on stablecoin regulations, but it is likely not to happen in the short term. In the meantime, smaller players are likely to be pushed out as stablecoin issuers consolidate in the face of new regulations

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