Global Regulatory Acceleration: 2025 as a Turning Point for Stablecoin Development
Global regulatory frameworks are rapidly taking shape and continuing to evolve, marking 2025 as a watershed year for stablecoin development. A market valued at over $250 billion is transitioning from unchecked growth to compliance-driven transformation.

Core Definition and Classification of Stablecoins
Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging to fiat currencies, commodities, or other cryptographic assets. They are primarily categorized into fiat-collateralized stablecoins (e.g., USDT, USDC), crypto-collateralized stablecoins (e.g., DAI), and algorithmic stablecoins (e.g., the collapsed UST).

Importance of Stablecoins

• As the "medium of exchange" and "safe haven" within the cryptocurrency ecosystem, they provide a measure of value and liquidity.

• They enable low-cost, high-speed, and financially inclusive global payments and remittances.

• As foundational assets in decentralized finance (DeFi), they support lending, trading, and other protocols.

• They drive the digital transformation of traditional finance, serving as core tools for the tokenization of real-world assets (RWA).

The Necessity of Compliance
The collapse of UST in 2022 exposed the systemic risks of stablecoins, making compliance a prerequisite for survival. Key reasons include preventing risk contagion, curbing illicit financial activities, and safeguarding monetary sovereignty.

Major Compliance Risks

1. Legal Classification Risks: Divergent regulatory classifications across jurisdictions lead to surging compliance costs.

2. Reserve Asset Risks: Non-transparent or insufficient reserve assets can trigger bank runs.

3. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Risks: Stablecoins are susceptible to illicit activities, necessitating strict KYC/KYT measures.

4. Market Integrity Risks: Market manipulation and misrepresentation harm investor interests.

5. Systemic Risks: The collapse of a stablecoin could cascade into DeFi and traditional finance.

6. Sanctions Compliance Risks: Varying global sanctions lists and on-chain address screening complicate compliance.

7. Cross-Border and Jurisdictional Risks: Diminishing regulatory arbitrage opportunities require adherence to multiple regulatory regimes.

Global Regulatory Trends

• The United States employs a multi-agency regulatory approach, emphasizing redemption mechanisms.

• The EU’s MiCA regulation categorizes stablecoins as "electronic money tokens" or "asset-referenced tokens," imposing stringent oversight.

• China adopts a dual regulatory model, with a strict ban on the mainland and a refined regulatory system in Hong Kong.

• International organizations like the FSB and BIS are advancing global regulatory standards.

Paths to Compliance

• Issuers must build comprehensive compliance systems, including proactive regulatory engagement, standardized reserve asset management, enhanced technical compliance, and robust risk controls.

• Investors should establish risk screening frameworks, prioritizing transparent and compliant stablecoins while recognizing that "stability" does not equate to "risk-free."

Future Outlook and Challenges

• Trends include increased industry polarization, alignment with global regulatory standards, expansion into real-world applications, and more conservative asset reserves.

• Challenges involve gaps in redemption mechanisms, lack of unified technical standards, and concerns over financial sovereignty.

Summary
Original Author: Lawyer Jie Hui

2025 has become a watershed year for stablecoin development, as global regulatory frameworks accelerate and mature, bringing former "gray areas" into clearly defined regulatory scopes. This market, valued at over $250 billion, is undergoing the pains and transformations of transitioning from unchecked growth to compliance.

Core Definition, Classification, and Importance of Stablecoins
(1) Core Definition of Stablecoins
Stablecoins are a special type of cryptocurrency designed to maintain value stability (unlike Bitcoin or Ethereum, which seek price appreciation). They achieve this by pegging to fiat currencies, commodities, or other cryptographic assets, or through algorithmic mechanisms, providing a benchmark of value for the highly volatile digital asset market.

Stablecoins essentially serve as "bridge assets" connecting the traditional financial world with the crypto-digital world. They inherit the technical advantages of cryptocurrencies (e.g., global reach, 24/7 operation, programmability, peer-to-peer transfers) while possessing the value stability of traditional fiat currencies. Currently, they facilitate the circulation of trillions of dollars monthly within the crypto ecosystem.

(2) Types of Stablecoins
Based on their anchoring mechanisms, stablecoins are primarily divided into three categories:

1. Fiat-Collateralized Stablecoins: Pegged 1:1 to fiat currencies (e.g., the US dollar), with reserve assets typically comprising low-risk assets like cash and short-term government bonds. Examples include USDT (issued by Tether) and USDC (issued by Circle). The core risk lies in the authenticity and transparency of reserve assets.

2. Crypto-Collateralized Stablecoins: Backed by other crypto assets with over-collateralization (typically exceeding 150%), with smart contracts automatically adjusting collateral ratios to maintain stability. An example is DAI (issued by MakerDAO). The core risk involves liquidation risks due to sharp declines in collateral asset prices.

3. Algorithmic Stablecoins: Not backed by physical collateral, relying instead on algorithms to balance supply and demand (e.g., minting new coins or burning existing ones). A notable case is the collapsed UST in 2022. The core risk is the "death spiral" (a vicious cycle where price declines trigger panic, leading to sell-offs and further price drops until the system collapses).

(3) Importance of Stablecoins
The importance of stablecoins is reflected in four core functions:

1. Medium of Exchange, Measure of Value, and Safe Haven: In cryptocurrency trading, most trading pairs (e.g., BTC/USDT, ETH/USDC) use stablecoins as pricing units, providing a clear benchmark and avoiding the chaos of measuring volatile assets with other volatile assets. During market turbulence, traders can quickly convert high-risk assets like Bitcoin or Ethereum into stablecoins (e.g., USDT, USDC) to hedge risks, lock in profits, or temporarily exit without fully withdrawing from the crypto ecosystem (converting back to fiat is often time-consuming and expensive). This significantly enhances capital efficiency and market liquidity.

2. Global Payments and Remittances: Stablecoins leverage blockchain technology to revolutionize cross-border payments and remittances. Compared to traditional bank transfers (which can take days and incur high fees), stablecoin transfers are completed within minutes at minimal costs, unaffected by business hours or time zones. They also offer financial inclusion to the billions of unbanked individuals worldwide, enabling access to the global financial system with just a digital wallet.

3. Lifeblood of DeFi: The prosperity and development of DeFi would be unimaginable without stablecoins. Nearly all lending, trading, and derivative protocols use stablecoins as foundational assets. For example, in lending protocols like Aave and Compound, users deposit stablecoins like USDC and DAI to earn yields or borrow stablecoins for other investments. The interest rate market is largely built around stablecoins. In MakerDAO, DAI is the core output, allowing users to convert volatile assets into stable assets through over-collateralization. On decentralized exchanges (DEXs) like Uniswap and Curve, stablecoin trading pairs (e.g., USDT/USDC) often see daily volumes exceeding $1 billion, forming the basis of all trading activities.

4. Catalyst for Traditional Finance (TradFi) Digital Transformation: Stablecoins are the preferred tool for traditional financial institutions and large corporations exploring blockchain applications. They offer a low-risk, familiar entry point into the crypto market. In the promising field of RWA (real-world asset tokenization), stablecoins serve as core settlement tools, facilitating the tokenization and blockchain trading of traditional assets like stocks, government bonds, and corporate bonds, thereby creating new investment opportunities.

Compliance: A Non-Negotiable Priority for Stablecoins
In May 2022, the algorithmic stablecoin UST and its sister token Luna spiraled into collapse within days, wiping out over $40 billion in market value. This disaster was not an isolated incident but a stark revelation of the cracks beneath the surface of the stablecoin boom. It exposed the fatal flaws of algorithmic mechanisms, raised doubts about the adequacy of stablecoin reserves, and sounded the highest alarm for global regulators.

Stablecoins are far more than "non-volatile cryptocurrencies." They are infrastructure for the crypto economy, a new paradigm for global payments, and a strategic bridge connecting two parallel financial worlds. Their significance means that compliance, transparency, and stability are no longer just industry concerns but issues affecting the entire financial system. This is the fundamental reason global regulators are now prioritizing their oversight.

The scale of leading stablecoins (e.g., USDT and USDC, which collectively account for over 85% of the global market) and their intertwinement with traditional finance have granted them "systemic importance." Their risks could spill over into traditional finance, approaching a "too big to fail" threshold. This makes compliance not an option but a prerequisite for survival, for three core reasons:

1. Preventing Systemic Risk Contagion: The collapse of a major stablecoin like USDT would no longer be confined to the crypto market. Held by numerous traditional hedge funds, publicly traded companies, and payment firms, its failure could trigger a domino effect, causing large-scale liquidations in DeFi protocols and rapidly spreading to traditional financial markets like stocks and bonds through institutional investors, potentially sparking a global liquidity crisis. Compliant reserve audits and redemption safeguards are the first line of defense against such a collapse.

2. Curbing Illicit Financial Activities: The global reach, quasi-anonymity (on-chain addresses are traceable but not directly linked to user identities), and peer-to-peer transfer features of stablecoins make them attractive for money laundering, terrorist financing, and sanctions evasion. In 2023, global illicit transactions involving stablecoins reached $12 billion, with over 60% flowing to cross-border sanctioned regions. Without strict KYC (Know Your Customer), KYT (Know Your Transaction), and sanctions screening requirements, this efficient financial highway could become a perfect tool for criminals, inviting harsh regulatory crackdowns by sovereign states.

3. Safeguarding Monetary Sovereignty and Financial Stability: The widespread use of dollar-denominated stablecoins in emerging markets (e.g., over 20% of cross-border trade in Argentina and Turkey is settled in USDT) effectively creates a "shadow dollarization" (where citizens spontaneously use USD instead of their unstable local currency for savings and transactions). This erodes the monetary sovereignty and policy effectiveness of other countries. For the US itself, if unregulated stablecoins are widely used for payments, their potential bank run risks could threaten domestic financial stability. Thus, compliance is no longer an industry choice but a necessity for maintaining national financial security.

Discussing stablecoins inevitably leads to compliance because their "infrastructure" nature means they can no longer enjoy the "gray area" benefits of early cryptocurrencies. Compliance is no longer a shackle on their development but a license for acceptance into the mainstream financial system and a anchor of trust. The global regulatory wave aims not to stifle innovation but to rein in this runaway horse before it is too late, guiding it toward a transparent, robust, and responsible future.

Major Compliance Risks Facing Stablecoins
(1) Legal Classification Risks: Regulatory Divergence Drives Up Compliance Costs
Different jurisdictions have varying classifications for stablecoins:

• US regulators are still debating whether stablecoins should be treated as securities, commodities, or money transmission tools. For example, the SEC tends to classify asset-backed stablecoins as securities, the CFTC views them as commodities, and the OCC allows banks to issue "payment stablecoins." This multi-agency oversight requires issuers to comply with multiple sets of rules.

• The EU’s MiCA regulation categorizes stablecoins as "electronic money tokens" (pegged to a single fiat currency, e.g., USDC) or "asset-referenced tokens" (pegged to multiple assets), each with distinct requirements.

• Hong Kong’s Stablecoin Ordinance treats stablecoins as strictly regulated payment tools, focusing on their role as stores of value and payment mediums rather than securities.

This uncertainty, coupled with the potential for regulators to suddenly impose strict new rules, creates significant compliance complexity and costs for issuers.

(2) Reserve Asset Risks: Lack of Transparency Triggers Bank Run Crises
The authenticity, adequacy, and transparency of reserve assets are core challenges. The industry still faces three major issues:

1. Insufficient Reserves: In 2019, Tether (USDT) was revealed to be only 74% backed by real assets, despite long claiming full collateralization. As of Q3 2024, Tether disclosed that over 60% of its reserves are in short-term government bonds, but it faces scrutiny due to its quarterly audit frequency (compared to USDC’s monthly audits). Tether has since shifted to at least monthly reserve reports and often provides daily updates.

2. Non-Compliant Assets: Some smaller stablecoins invest reserves in high-risk areas (e.g., stocks, crypto assets). In 2023, one stablecoin depegged after its reserves plummeted by 30%.

3. Inadequate Disclosure: Only 30% of stablecoin issuers publicly disclose detailed reserve custodians and compositions (2024 crypto industry report), making it difficult for investors to verify asset authenticity.

New regulations like the US GENIUS Act and Hong Kong’s Stablecoin Ordinance require 100% reserves in high-liquidity assets (e.g., cash, short-term government bonds), daily audits, and strict capital, liquidity, and disclosure requirements. Non-transparent or insufficient reserves can directly trigger bank runs and depegging, leading to hefty fines, operational suspensions, or even criminal charges for issuers.

(3) AML/CFT Risks: A Hotspot for Regulatory Penalties
AML and CFT are top priorities for regulators. The price stability and global accessibility of stablecoins make them attractive for money laundering and sanctions evasion. Unlike volatile cryptocurrencies, stablecoins allow bad actors to transfer funds while preserving value. Regulations now mandate strict KYC, KYT, and suspicious activity reporting (e.g., frequent small transfers aggregated into large sums, cross-border large transfers). Violations can result in severe penalties and reputational damage.

(4) Market Integrity Risks: Weaknesses in Investor Protection
Stablecoin markets face two core integrity risks: market manipulation and misrepresentation. Large stablecoin holdings could be used to manipulate prices of Bitcoin or other crypto assets. False claims about reserves or algorithmic mechanisms, or inadequate disclosures, can mislead investors. Regulations are now stricter to ensure investors are not harmed by insufficient information.

(5) Systemic Risks: Potential Threats to Financial Stability
Systemic risk is a primary concern for financial authorities. DeFi protocols hold billions in stablecoins, and even a single major issuer’s failure could trigger a cascade of liquidations across the ecosystem. Imagine a domino effect: a major stablecoin collapse causes lending protocols using it as collateral to fail, inflicting heavy losses on users who staked their tokens. Soon, the shockwaves spread to traditional financial institutions that have begun integrating crypto technology. The chain reaction could be devastating.

(6) Sanctions Compliance Risks: Challenges in Global Operations
Stablecoin issuers face multi-jurisdictional sanctions compliance challenges:

1. Divergent Sanctions Lists: Lists from OFAC, the EU Council, and the UN Security Council overlap but are not identical. For example, an entity sanctioned by OFAC but not the EU requires tailored screening rules.

2. On-Chain Address Screening: Smart contract addresses can also be sanctioned. Some issuers use on-chain address blacklisting systems (e.g., Circle freezes USDC in OFAC-sanctioned addresses) or build sanctions screening modules into smart contracts to prevent stablecoins from flowing to sanctioned addresses in real time.

3. Decentralization Dilemma: Some decentralized stablecoins struggle to enforce freezes on sanctioned addresses, balancing compliance with decentralization.

Global compliance complexity requires simultaneously meeting different sanctions lists and requirements across countries, forcing issuers to balance innovation with compliance obligations—and increasing operational costs and difficulties.

(7) Cross-Border and Jurisdictional Risks: The End of Regulatory Arbitrage
Regulatory arbitrage (exploiting differences in rules across jurisdictions to operate in the most lenient, low-cost environments) is a real issue for stablecoins. Projects may register in loosely regulated regions but serve users globally.

This creates a "hellish" compliance puzzle: adhering to hundreds of different laws across jurisdictions is extremely challenging. Inconsistent or conflicting regulations leave issuers in a bind.

Global Regulatory Trends
Major jurisdictions are actively bringing stablecoins into regulatory frameworks:
(1) US Regulatory Framework
The US employs a multi-agency approach (SEC, CFTC, OCC, Treasury). The GENIUS Act allows non-bank entities (NBEs) and insured depository institution (IDI) subsidiaries to issue stablecoins. It emphasizes redemption processes, requiring issuers to establish clear policies and procedures for timely redemptions. However, it does not mandate stablecoins maintain par value in secondary markets, where most trading occurs.

(2) EU’s MiCA Framework
The EU’s Markets in Crypto-Assets (MiCA) regulation establishes a comprehensive, strict framework for stablecoins, including licensing, reserve asset requirements, and holder rights. MiCA categorizes stablecoins as "electronic money tokens" or "asset-referenced tokens," applying tailored rules to match risk levels.

(3) China’s Dual Regulatory Approach
China adopts a unique dual model: a strict ban on stablecoin issuance and trading on the mainland, but a refined regulatory system in Hong Kong. Hong Kong’s Stablecoin Ordinance, effective August 2025, requires 100% segregated reserves in high-liquidity assets (e.g., cash, USD or HKD government bonds). The Securities and Futures Commission (SFC) mandates custody by licensed Hong Kong banks, daily audits, and next-day redemption capabilities. This prudent approach aims to position Hong Kong as a global digital asset innovation hub.

(4) International Organization Trends: Pushing for Global Standards
Bodies like the Financial Stability Board (FSB) and Bank for International Settlements (BIS) are developing unified global stablecoin regulations to prevent arbitrage and ensure financial stability. The FSB’s July 2023 "Global Regulatory Framework for Crypto-Asset Activities" requires issuers to meet four core criteria: reserve adequacy, transparent redemption mechanisms, AML compliance, and systemic risk prevention. The Basel Committee on Banking Supervision (BCBS) updated its "Prudential Treatment of Crypto-Asset Exposures" standards in 2024, effective January 1, 2025, imposing stricter, unified global frameworks for banks holding crypto assets (including stablecoins) to manage risks and maintain financial stability.

Paths to Compliance: Action Guides for Issuers and Investors
(1) Issuers: Building Comprehensive Compliance Systems
Stablecoin issuers face multi-dimensional challenges and must construct full-spectrum compliance systems across four areas:

1. Proactive Regulatory Engagement: Prioritize licensing in clear regulatory jurisdictions (e.g., US, EU, Hong Kong), maintain regular communication with regulators, and avoid compliance surprises.

2. Standardized Reserve Management: Strictly adhere to regulatory requirements for reserve assets (e.g., 100% cash and short-term government bonds), select top-tier custodians (e.g., HSBC in Hong Kong), and regularly publish audited reserve reports from qualified accounting firms, including detailed compositions and custodian information.

3. Enhanced Technical Compliance: Invest in top-tier AML/KYC and sanctions screening systems. Leading issuers often combine on-chain transaction tracking with off-chain identity verification (e.g., USDC requires large-volume users to complete facial recognition and address tracing). Integrate third-party tools like Chainalysis for KYT screening of cross-chain transactions. Guard against cybersecurity risks: asset theft, private key loss, blockchain network failures, smart contract vulnerabilities, and network forks.

4. Robust Risk Controls: Conduct regular stress tests (e.g., simulating 10% of users redeeming simultaneously), ensure reserve liquidity covers 100% of redemptions within 30 days, establish risk reserves (at least 2% of issuance size) for sudden depegging events, and develop contingency plans (e.g., limited redemptions if reserves are insufficient).

(2) Investors: Establishing Risk Screening Frameworks
Investors should conduct thorough due diligence, researching issuer qualifications, reserve compositions, audit histories, and compliance statuses before engaging with any stablecoin project. Preferring compliant instruments is key to risk reduction—prioritize transparent stablecoins like USDC, backed by high-liquidity assets, over opaque projects. Most importantly, investors must recognize that "stability" is relative, not risk-free. Even fully collateralized stablecoins face counterparty, regulatory, and technical risks.

Future Outlook: Trends and Challenges for Stablecoins
(1) Trends in Stablecoin Development
Global regulation is reshaping the stablecoin landscape, but true stability hinges not only on legal compliance but also on technical transparency and market confidence. Compliance-driven stablecoins will exhibit the following trends:

1. Increased Industry Polarization, Compliance as a Core Competitiveness: For stablecoin projects, compliance is no longer optional but a core competitive edge. Projects that proactively embrace regulation, achieve extreme transparency, and build robust compliance systems (e.g., Circle, issuer of USDC) will gain institutional trust and market share. Conversely, projects lingering in gray areas, with opaque reserves and ambiguous compliance, will face ongoing regulatory scrutiny and sudden risks, seeing their生存空间 squeezed. The global regulatory wave is pushing stablecoins from the "Wild West" era into an institutionalized, transparent, and highly compliant new phase.

2. Convergence Toward Global Unified Regulatory Standards: Key gaps remain in global stablecoin regulation, but core standards are unifying. Regardless of regional differences, three requirements have become universal: reserve adequacy (100% high-liquidity asset backing), transparent redemption mechanisms (clear T+1 or T+0 processes), and full AML/CFT compliance (KYC/KYT covering all users). For example, the US GENIUS Act, EU MiCA, and Hong Kong’s Stablecoin Ordinance, while differing in licensing processes and penalties, all strictly enforce these points, minimizing regulatory arbitrage opportunities.

3. Expansion into Real-Economy Applications: As tokenization of real-world assets (RWA) like stocks, bonds, and real estate accelerates, stablecoins will become the preferred settlement tool due to their value stability and compliance. They already enhance cross-border payment efficiency, with emerging markets in Southeast Asia and Latin America as core use cases. Future applications will extend to corporate cross-border trade, supply chain finance, and payroll.

4. Conservative Asset Reserves: Regulatory requirements for reserves to be high-quality, liquid assets (e.g., cash, short-term government bonds) will force issuers to abandon high-risk investment strategies and adopt more transparent, secure models.

(2) Challenges for Stablecoins
Despite positive trends, compliance-driven stablecoins still face significant challenges:

1. Gaps in Redemption Mechanisms: Most regulations focus on primary market redemptions (directly with issuers), but secondary market (exchange) stability mechanisms are lacking. Rules are needed for addressing depegging in secondary markets.

2. Lack of Unified Technical Standards: Standards for smart contract security, cross-chain transaction compliance, and data privacy protection are not globally unified, potentially creating technical compliance barriers.

3. Financial Sovereignty Challenges: Large-scale stablecoins could impair national monetary policy transmission and financial sovereignty. If deeply integrated with major financial systems, their failure could trigger broader financial turmoil.

Conclusion
The future is here, and compliance is no longer an option but a foundation for survival. Whether issuers or investors, only those who proactively embrace regulation, strengthen risk controls, and enhance transparency will thrive in this transformation. The ultimate goal of stablecoins is never to replace fiat currencies but to become a stable and efficient light in the financial infrastructure of the digital age.

This path is inevitably long and challenging, but it is these very challenges that will drive stablecoins toward a more mature, inclusive, and sustainable future. What we are witnessing is not only a technological evolution but also an advancement of financial civilization.

Global Regulatory Acceleration: 2025 as a Turning Point for Stablecoin Development
Global regulatory frameworks are rapidly taking shape and continuing to evolve, marking 2025 as a watershed year for stablecoin development. A market valued at over $250 billion is transitioning from unchecked growth to compliance-driven transformation.

Core Definition and Classification of Stablecoins
Stablecoins are a type of cryptocurrency designed to maintain a stable value by pegging to fiat currencies, commodities, or other cryptographic assets. They are primarily categorized into fiat-collateralized stablecoins (e.g., USDT, USDC), crypto-collateralized stablecoins (e.g., DAI), and algorithmic stablecoins (e.g., the collapsed UST).

Importance of Stablecoins

• As the "medium of exchange" and "safe haven" within the cryptocurrency ecosystem, they provide a measure of value and liquidity.

• They enable low-cost, high-speed, and financially inclusive global payments and remittances.

• As foundational assets in decentralized finance (DeFi), they support lending, trading, and other protocols.

• They drive the digital transformation of traditional finance, serving as core tools for the tokenization of real-world assets (RWA).

The Necessity of Compliance
The collapse of UST in 2022 exposed the systemic risks of stablecoins, making compliance a prerequisite for survival. Key reasons include preventing risk contagion, curbing illicit financial activities, and safeguarding monetary sovereignty.

Major Compliance Risks

1. Legal Classification Risks: Divergent regulatory classifications across jurisdictions lead to surging compliance costs.

2. Reserve Asset Risks: Non-transparent or insufficient reserve assets can trigger bank runs.

3. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Risks: Stablecoins are susceptible to illicit activities, necessitating strict KYC/KYT measures.

4. Market Integrity Risks: Market manipulation and misrepresentation harm investor interests.

5. Systemic Risks: The collapse of a stablecoin could cascade into DeFi and traditional finance.

6. Sanctions Compliance Risks: Varying global sanctions lists and on-chain address screening complicate compliance.

7. Cross-Border and Jurisdictional Risks: Diminishing regulatory arbitrage opportunities require adherence to multiple regulatory regimes.

Global Regulatory Trends

• The United States employs a multi-agency regulatory approach, emphasizing redemption mechanisms.

• The EU’s MiCA regulation categorizes stablecoins as "electronic money tokens" or "asset-referenced tokens," imposing stringent oversight.

• China adopts a dual regulatory model, with a strict ban on the mainland and a refined regulatory system in Hong Kong.

• International organizations like the FSB and BIS are advancing global regulatory standards.

Paths to Compliance

• Issuers must build comprehensive compliance systems, including proactive regulatory engagement, standardized reserve asset management, enhanced technical compliance, and robust risk controls.

• Investors should establish risk screening frameworks, prioritizing transparent and compliant stablecoins while recognizing that "stability" does not equate to "risk-free."

Future Outlook and Challenges

• Trends include increased industry polarization, alignment with global regulatory standards, expansion into real-world applications, and more conservative asset reserves.

• Challenges involve gaps in redemption mechanisms, lack of unified technical standards, and concerns over financial sovereignty.

Summary
Original Author: Lawyer Jie Hui

2025 has become a watershed year for stablecoin development, as global regulatory frameworks accelerate and mature, bringing former "gray areas" into clearly defined regulatory scopes. This market, valued at over $250 billion, is undergoing the pains and transformations of transitioning from unchecked growth to compliance.

Core Definition, Classification, and Importance of Stablecoins
(1) Core Definition of Stablecoins
Stablecoins are a special type of cryptocurrency designed to maintain value stability (unlike Bitcoin or Ethereum, which seek price appreciation). They achieve this by pegging to fiat currencies, commodities, or other cryptographic assets, or through algorithmic mechanisms, providing a benchmark of value for the highly volatile digital asset market.

Stablecoins essentially serve as "bridge assets" connecting the traditional financial world with the crypto-digital world. They inherit the technical advantages of cryptocurrencies (e.g., global reach, 24/7 operation, programmability, peer-to-peer transfers) while possessing the value stability of traditional fiat currencies. Currently, they facilitate the circulation of trillions of dollars monthly within the crypto ecosystem.

(2) Types of Stablecoins
Based on their anchoring mechanisms, stablecoins are primarily divided into three categories:

1. Fiat-Collateralized Stablecoins: Pegged 1:1 to fiat currencies (e.g., the US dollar), with reserve assets typically comprising low-risk assets like cash and short-term government bonds. Examples include USDT (issued by Tether) and USDC (issued by Circle). The core risk lies in the authenticity and transparency of reserve assets.

2. Crypto-Collateralized Stablecoins: Backed by other crypto assets with over-collateralization (typically exceeding 150%), with smart contracts automatically adjusting collateral ratios to maintain stability. An example is DAI (issued by MakerDAO). The core risk involves liquidation risks due to sharp declines in collateral asset prices.

3. Algorithmic Stablecoins: Not backed by physical collateral, relying instead on algorithms to balance supply and demand (e.g., minting new coins or burning existing ones). A notable case is the collapsed UST in 2022. The core risk is the "death spiral" (a vicious cycle where price declines trigger panic, leading to sell-offs and further price drops until the system collapses).

(3) Importance of Stablecoins
The importance of stablecoins is reflected in four core functions:

1. Medium of Exchange, Measure of Value, and Safe Haven: In cryptocurrency trading, most trading pairs (e.g., BTC/USDT, ETH/USDC) use stablecoins as pricing units, providing a clear benchmark and avoiding the chaos of measuring volatile assets with other volatile assets. During market turbulence, traders can quickly convert high-risk assets like Bitcoin or Ethereum into stablecoins (e.g., USDT, USDC) to hedge risks, lock in profits, or temporarily exit without fully withdrawing from the crypto ecosystem (converting back to fiat is often time-consuming and expensive). This significantly enhances capital efficiency and market liquidity.

2. Global Payments and Remittances: Stablecoins leverage blockchain technology to revolutionize cross-border payments and remittances. Compared to traditional bank transfers (which can take days and incur high fees), stablecoin transfers are completed within minutes at minimal costs, unaffected by business hours or time zones. They also offer financial inclusion to the billions of unbanked individuals worldwide, enabling access to the global financial system with just a digital wallet.

3. Lifeblood of DeFi: The prosperity and development of DeFi would be unimaginable without stablecoins. Nearly all lending, trading, and derivative protocols use stablecoins as foundational assets. For example, in lending protocols like Aave and Compound, users deposit stablecoins like USDC and DAI to earn yields or borrow stablecoins for other investments. The interest rate market is largely built around stablecoins. In MakerDAO, DAI is the core output, allowing users to convert volatile assets into stable assets through over-collateralization. On decentralized exchanges (DEXs) like Uniswap and Curve, stablecoin trading pairs (e.g., USDT/USDC) often see daily volumes exceeding $1 billion, forming the basis of all trading activities.

4. Catalyst for Traditional Finance (TradFi) Digital Transformation: Stablecoins are the preferred tool for traditional financial institutions and large corporations exploring blockchain applications. They offer a low-risk, familiar entry point into the crypto market. In the promising field of RWA (real-world asset tokenization), stablecoins serve as core settlement tools, facilitating the tokenization and blockchain trading of traditional assets like stocks, government bonds, and corporate bonds, thereby creating new investment opportunities.

Compliance: A Non-Negotiable Priority for Stablecoins
In May 2022, the algorithmic stablecoin UST and its sister token Luna spiraled into collapse within days, wiping out over $40 billion in market value. This disaster was not an isolated incident but a stark revelation of the cracks beneath the surface of the stablecoin boom. It exposed the fatal flaws of algorithmic mechanisms, raised doubts about the adequacy of stablecoin reserves, and sounded the highest alarm for global regulators.

Stablecoins are far more than "non-volatile cryptocurrencies." They are infrastructure for the crypto economy, a new paradigm for global payments, and a strategic bridge connecting two parallel financial worlds. Their significance means that compliance, transparency, and stability are no longer just industry concerns but issues affecting the entire financial system. This is the fundamental reason global regulators are now prioritizing their oversight.

The scale of leading stablecoins (e.g., USDT and USDC, which collectively account for over 85% of the global market) and their intertwinement with traditional finance have granted them "systemic importance." Their risks could spill over into traditional finance, approaching a "too big to fail" threshold. This makes compliance not an option but a prerequisite for survival, for three core reasons:

1. Preventing Systemic Risk Contagion: The collapse of a major stablecoin like USDT would no longer be confined to the crypto market. Held by numerous traditional hedge funds, publicly traded companies, and payment firms, its failure could trigger a domino effect, causing large-scale liquidations in DeFi protocols and rapidly spreading to traditional financial markets like stocks and bonds through institutional investors, potentially sparking a global liquidity crisis. Compliant reserve audits and redemption safeguards are the first line of defense against such a collapse.

2. Curbing Illicit Financial Activities: The global reach, quasi-anonymity (on-chain addresses are traceable but not directly linked to user identities), and peer-to-peer transfer features of stablecoins make them attractive for money laundering, terrorist financing, and sanctions evasion. In 2023, global illicit transactions involving stablecoins reached $12 billion, with over 60% flowing to cross-border sanctioned regions. Without strict KYC (Know Your Customer), KYT (Know Your Transaction), and sanctions screening requirements, this efficient financial highway could become a perfect tool for criminals, inviting harsh regulatory crackdowns by sovereign states.

3. Safeguarding Monetary Sovereignty and Financial Stability: The widespread use of dollar-denominated stablecoins in emerging markets (e.g., over 20% of cross-border trade in Argentina and Turkey is settled in USDT) effectively creates a "shadow dollarization" (where citizens spontaneously use USD instead of their unstable local currency for savings and transactions). This erodes the monetary sovereignty and policy effectiveness of other countries. For the US itself, if unregulated stablecoins are widely used for payments, their potential bank run risks could threaten domestic financial stability. Thus, compliance is no longer an industry choice but a necessity for maintaining national financial security.

Discussing stablecoins inevitably leads to compliance because their "infrastructure" nature means they can no longer enjoy the "gray area" benefits of early cryptocurrencies. Compliance is no longer a shackle on their development but a license for acceptance into the mainstream financial system and a anchor of trust. The global regulatory wave aims not to stifle innovation but to rein in this runaway horse before it is too late, guiding it toward a transparent, robust, and responsible future.

Major Compliance Risks Facing Stablecoins
(1) Legal Classification Risks: Regulatory Divergence Drives Up Compliance Costs
Different jurisdictions have varying classifications for stablecoins:

• US regulators are still debating whether stablecoins should be treated as securities, commodities, or money transmission tools. For example, the SEC tends to classify asset-backed stablecoins as securities, the CFTC views them as commodities, and the OCC allows banks to issue "payment stablecoins." This multi-agency oversight requires issuers to comply with multiple sets of rules.

• The EU’s MiCA regulation categorizes stablecoins as "electronic money tokens" (pegged to a single fiat currency, e.g., USDC) or "asset-referenced tokens" (pegged to multiple assets), each with distinct requirements.

• Hong Kong’s Stablecoin Ordinance treats stablecoins as strictly regulated payment tools, focusing on their role as stores of value and payment mediums rather than securities.

This uncertainty, coupled with the potential for regulators to suddenly impose strict new rules, creates significant compliance complexity and costs for issuers.

(2) Reserve Asset Risks: Lack of Transparency Triggers Bank Run Crises
The authenticity, adequacy, and transparency of reserve assets are core challenges. The industry still faces three major issues:

1. Insufficient Reserves: In 2019, Tether (USDT) was revealed to be only 74% backed by real assets, despite long claiming full collateralization. As of Q3 2024, Tether disclosed that over 60% of its reserves are in short-term government bonds, but it faces scrutiny due to its quarterly audit frequency (compared to USDC’s monthly audits). Tether has since shifted to at least monthly reserve reports and often provides daily updates.

2. Non-Compliant Assets: Some smaller stablecoins invest reserves in high-risk areas (e.g., stocks, crypto assets). In 2023, one stablecoin depegged after its reserves plummeted by 30%.

3. Inadequate Disclosure: Only 30% of stablecoin issuers publicly disclose detailed reserve custodians and compositions (2024 crypto industry report), making it difficult for investors to verify asset authenticity.

New regulations like the US GENIUS Act and Hong Kong’s Stablecoin Ordinance require 100% reserves in high-liquidity assets (e.g., cash, short-term government bonds), daily audits, and strict capital, liquidity, and disclosure requirements. Non-transparent or insufficient reserves can directly trigger bank runs and depegging, leading to hefty fines, operational suspensions, or even criminal charges for issuers.

(3) AML/CFT Risks: A Hotspot for Regulatory Penalties
AML and CFT are top priorities for regulators. The price stability and global accessibility of stablecoins make them attractive for money laundering and sanctions evasion. Unlike volatile cryptocurrencies, stablecoins allow bad actors to transfer funds while preserving value. Regulations now mandate strict KYC, KYT, and suspicious activity reporting (e.g., frequent small transfers aggregated into large sums, cross-border large transfers). Violations can result in severe penalties and reputational damage.

(4) Market Integrity Risks: Weaknesses in Investor Protection
Stablecoin markets face two core integrity risks: market manipulation and misrepresentation. Large stablecoin holdings could be used to manipulate prices of Bitcoin or other crypto assets. False claims about reserves or algorithmic mechanisms, or inadequate disclosures, can mislead investors. Regulations are now stricter to ensure investors are not harmed by insufficient information.

(5) Systemic Risks: Potential Threats to Financial Stability
Systemic risk is a primary concern for financial authorities. DeFi protocols hold billions in stablecoins, and even a single major issuer’s failure could trigger a cascade of liquidations across the ecosystem. Imagine a domino effect: a major stablecoin collapse causes lending protocols using it as collateral to fail, inflicting heavy losses on users who staked their tokens. Soon, the shockwaves spread to traditional financial institutions that have begun integrating crypto technology. The chain reaction could be devastating.

(6) Sanctions Compliance Risks: Challenges in Global Operations
Stablecoin issuers face multi-jurisdictional sanctions compliance challenges:

1. Divergent Sanctions Lists: Lists from OFAC, the EU Council, and the UN Security Council overlap but are not identical. For example, an entity sanctioned by OFAC but not the EU requires tailored screening rules.

2. On-Chain Address Screening: Smart contract addresses can also be sanctioned. Some issuers use on-chain address blacklisting systems (e.g., Circle freezes USDC in OFAC-sanctioned addresses) or build sanctions screening modules into smart contracts to prevent stablecoins from flowing to sanctioned addresses in real time.

3. Decentralization Dilemma: Some decentralized stablecoins struggle to enforce freezes on sanctioned addresses, balancing compliance with decentralization.

Global compliance complexity requires simultaneously meeting different sanctions lists and requirements across countries, forcing issuers to balance innovation with compliance obligations—and increasing operational costs and difficulties.

(7) Cross-Border and Jurisdictional Risks: The End of Regulatory Arbitrage
Regulatory arbitrage (exploiting differences in rules across jurisdictions to operate in the most lenient, low-cost environments) is a real issue for stablecoins. Projects may register in loosely regulated regions but serve users globally.

This creates a "hellish" compliance puzzle: adhering to hundreds of different laws across jurisdictions is extremely challenging. Inconsistent or conflicting regulations leave issuers in a bind.

Global Regulatory Trends
Major jurisdictions are actively bringing stablecoins into regulatory frameworks:
(1) US Regulatory Framework
The US employs a multi-agency approach (SEC, CFTC, OCC, Treasury). The GENIUS Act allows non-bank entities (NBEs) and insured depository institution (IDI) subsidiaries to issue stablecoins. It emphasizes redemption processes, requiring issuers to establish clear policies and procedures for timely redemptions. However, it does not mandate stablecoins maintain par value in secondary markets, where most trading occurs.

(2) EU’s MiCA Framework
The EU’s Markets in Crypto-Assets (MiCA) regulation establishes a comprehensive, strict framework for stablecoins, including licensing, reserve asset requirements, and holder rights. MiCA categorizes stablecoins as "electronic money tokens" or "asset-referenced tokens," applying tailored rules to match risk levels.

(3) China’s Dual Regulatory Approach
China adopts a unique dual model: a strict ban on stablecoin issuance and trading on the mainland, but a refined regulatory system in Hong Kong. Hong Kong’s Stablecoin Ordinance, effective August 2025, requires 100% segregated reserves in high-liquidity assets (e.g., cash, USD or HKD government bonds). The Securities and Futures Commission (SFC) mandates custody by licensed Hong Kong banks, daily audits, and next-day redemption capabilities. This prudent approach aims to position Hong Kong as a global digital asset innovation hub.

(4) International Organization Trends: Pushing for Global Standards
Bodies like the Financial Stability Board (FSB) and Bank for International Settlements (BIS) are developing unified global stablecoin regulations to prevent arbitrage and ensure financial stability. The FSB’s July 2023 "Global Regulatory Framework for Crypto-Asset Activities" requires issuers to meet four core criteria: reserve adequacy, transparent redemption mechanisms, AML compliance, and systemic risk prevention. The Basel Committee on Banking Supervision (BCBS) updated its "Prudential Treatment of Crypto-Asset Exposures" standards in 2024, effective January 1, 2025, imposing stricter, unified global frameworks for banks holding crypto assets (including stablecoins) to manage risks and maintain financial stability.

Paths to Compliance: Action Guides for Issuers and Investors
(1) Issuers: Building Comprehensive Compliance Systems
Stablecoin issuers face multi-dimensional challenges and must construct full-spectrum compliance systems across four areas:

1. Proactive Regulatory Engagement: Prioritize licensing in clear regulatory jurisdictions (e.g., US, EU, Hong Kong), maintain regular communication with regulators, and avoid compliance surprises.

2. Standardized Reserve Management: Strictly adhere to regulatory requirements for reserve assets (e.g., 100% cash and short-term government bonds), select top-tier custodians (e.g., HSBC in Hong Kong), and regularly publish audited reserve reports from qualified accounting firms, including detailed compositions and custodian information.

3. Enhanced Technical Compliance: Invest in top-tier AML/KYC and sanctions screening systems. Leading issuers often combine on-chain transaction tracking with off-chain identity verification (e.g., USDC requires large-volume users to complete facial recognition and address tracing). Integrate third-party tools like Chainalysis for KYT screening of cross-chain transactions. Guard against cybersecurity risks: asset theft, private key loss, blockchain network failures, smart contract vulnerabilities, and network forks.

4. Robust Risk Controls: Conduct regular stress tests (e.g., simulating 10% of users redeeming simultaneously), ensure reserve liquidity covers 100% of redemptions within 30 days, establish risk reserves (at least 2% of issuance size) for sudden depegging events, and develop contingency plans (e.g., limited redemptions if reserves are insufficient).

(2) Investors: Establishing Risk Screening Frameworks
Investors should conduct thorough due diligence, researching issuer qualifications, reserve compositions, audit histories, and compliance statuses before engaging with any stablecoin project. Preferring compliant instruments is key to risk reduction—prioritize transparent stablecoins like USDC, backed by high-liquidity assets, over opaque projects. Most importantly, investors must recognize that "stability" is relative, not risk-free. Even fully collateralized stablecoins face counterparty, regulatory, and technical risks.

Future Outlook: Trends and Challenges for Stablecoins
(1) Trends in Stablecoin Development
Global regulation is reshaping the stablecoin landscape, but true stability hinges not only on legal compliance but also on technical transparency and market confidence. Compliance-driven stablecoins will exhibit the following trends:

1. Increased Industry Polarization, Compliance as a Core Competitiveness: For stablecoin projects, compliance is no longer optional but a core competitive edge. Projects that proactively embrace regulation, achieve extreme transparency, and build robust compliance systems (e.g., Circle, issuer of USDC) will gain institutional trust and market share. Conversely, projects lingering in gray areas, with opaque reserves and ambiguous compliance, will face ongoing regulatory scrutiny and sudden risks, seeing their生存空间 squeezed. The global regulatory wave is pushing stablecoins from the "Wild West" era into an institutionalized, transparent, and highly compliant new phase.

2. Convergence Toward Global Unified Regulatory Standards: Key gaps remain in global stablecoin regulation, but core standards are unifying. Regardless of regional differences, three requirements have become universal: reserve adequacy (100% high-liquidity asset backing), transparent redemption mechanisms (clear T+1 or T+0 processes), and full AML/CFT compliance (KYC/KYT covering all users). For example, the US GENIUS Act, EU MiCA, and Hong Kong’s Stablecoin Ordinance, while differing in licensing processes and penalties, all strictly enforce these points, minimizing regulatory arbitrage opportunities.

3. Expansion into Real-Economy Applications: As tokenization of real-world assets (RWA) like stocks, bonds, and real estate accelerates, stablecoins will become the preferred settlement tool due to their value stability and compliance. They already enhance cross-border payment efficiency, with emerging markets in Southeast Asia and Latin America as core use cases. Future applications will extend to corporate cross-border trade, supply chain finance, and payroll.

4. Conservative Asset Reserves: Regulatory requirements for reserves to be high-quality, liquid assets (e.g., cash, short-term government bonds) will force issuers to abandon high-risk investment strategies and adopt more transparent, secure models.

(2) Challenges for Stablecoins
Despite positive trends, compliance-driven stablecoins still face significant challenges:

1. Gaps in Redemption Mechanisms: Most regulations focus on primary market redemptions (directly with issuers), but secondary market (exchange) stability mechanisms are lacking. Rules are needed for addressing depegging in secondary markets.

2. Lack of Unified Technical Standards: Standards for smart contract security, cross-chain transaction compliance, and data privacy protection are not globally unified, potentially creating technical compliance barriers.

3. Financial Sovereignty Challenges: Large-scale stablecoins could impair national monetary policy transmission and financial sovereignty. If deeply integrated with major financial systems, their failure could trigger broader financial turmoil.

Conclusion
The future is here, and compliance is no longer an option but a foundation for survival. Whether issuers or investors, only those who proactively embrace regulation, strengthen risk controls, and enhance transparency will thrive in this transformation. The ultimate goal of stablecoins is never to replace fiat currencies but to become a stable and efficient light in the financial infrastructure of the digital age.

This path is inevitably long and challenging, but it is these very challenges that will drive stablecoins toward a more mature, inclusive, and sustainable future. What we are witnessing is not only a technological evolution but also an advancement of financial civilization.