Regulations globally look to make stablecoin usage safer for users and prevent threats to national currencies.
A Binance Research report delved into the stablecoin vertical as emerging crypto regulations worldwide pose new challenges for issuers and platforms using the assets. It touched upon events that put regulators on alert about the asset type.
While stablecoins threaten financial regulators and governments due to their ability to allow citizens to utilize assets backed by other national currencies, mainly the US dollar, black swan events related to stablecoins have caused catastrophe. The Terra ecosystem collapse stemmed from the depegging of the UST stablecoin, an algorithmic stablecoin that lost its ‘stable’ $1 valuation and plunged in value. Many holders and participants in the Terra ecosystem were left with nothing but losses.
That has caused regulators from numerous countries to ban algorithmic stablecoins altogether while allowing asset-backed ones to be issued, albeit with strict regulations. Others are not fans at all. That was evident when the Facebook-led Libra project wanted to bring the Diem stablecoin to the market. However, the lack of central bank authority on such an asset caused regulators to push Facebook and its partner companies in Libra away from launching such an asset.
The European Union’s MiCA, for instance, which is set to take full effect in the bloc on December 30, will focus tremendously on regulating stablecoins. In fact, the framework has partially kicked off, starting with the enforcement of stablecoin rules. For one, it makes it very hard for assets tied to the value of any currency but the euro. That move comes to prevent the US dollar from replacing the use of euros and weakening the currency.
Stablecoin issuers are already scrambling to register with regulators of the bloc’s member states to issue their offerings. Circle was the first to do so. It is now offering the EURC stablecoin—a euro-pegged asset.
MiCA has also banned algorithmic stablecoin issuance in the bloc.
The UAE Will Implement Stablecoin Regulations Next Year
The UAE, a leading crypto hub in MENA and globally, will enforce its stablecoin rules in 2025. Titled the Payment Token Services Regulation, the framework bans algorithmic stablecoins and those tied to national currencies other than the dirham. Issuers must secure a license from the Central Bank of the UAE (CBUAE) to offer dirham-pegged assets. Most recently, AE Stablecoin, a UAE-based issuer, became the first to secure licensing to issue stablecoins in the jurisdiction.
