Key takeaways
- Stablecoin regulation in the US remains fragmented, with multiple agencies applying existing laws rather than a unified framework.
- Congress is making progress on a federal stablecoin law, with bipartisan support for clearer regulations and issuer oversight.
- Global counterparts, including the EU, UK and Asia, have already implemented strict licensing and reserve requirements, setting regulatory benchmarks.
- Clear stablecoin rules could drive institutional adoption, prevent financial instability, and shape the future of digital payments.
Stablecoins, such as Tether’s USDt (USDT) and USDC (USDC), are cryptocurrencies designed to maintain a stable value by pegging their price to a reserve asset, often a fiat currency like the US dollar.
This stability makes stablecoins a vital bridge between traditional money and the crypto ecosystem — they facilitate trading on exchanges, enable faster cross-border payments, and power decentralized finance (DeFi) while avoiding the wild price swings of coins like Bitcoin (BTC).
As stablecoins have grown in popularity — with a global market cap exceeding $200 billion as of early 2025 — regulators worldwide have taken notice.
Different countries have adopted various approaches to overseeing these assets. Jurisdictions like the European Union, Hong Kong and Singapore are leading with comprehensive stablecoin rules, while the United States is still deliberating on a federal framework.
This guide will break down why regulators care about stablecoins, how the US is handling them specifically, recent developments up to March 2025 and what the future might hold.
Why regulate stablecoins?
Stablecoins offer the benefits of cryptocurrency without volatility, but they also pose risks that regulators seek to address:
- Financial stability risks: A major stablecoin collapse, like TerraUSD in 2022, can trigger a digital bank run, mass redemptions and financial market stress. Regulations aim to prevent such failures.
- Consumer protection: Users need assurance that stablecoins are fully backed and redeemable. Cases like Tether’s past misrepresentations show the need for strict reserve requirements, audits and redemption rights.
- Market integrity and transparency: Stablecoins play a crucial role in crypto markets, but misleading claims can erode trust. The Commodity Futures Trading Commission (CFTC) fined Tether $41 million in 2021 for misrepresenting reserves, underscoring the need for oversight.
- Illicit finance concerns: Stablecoins can facilitate money laundering if unchecked. US Anti-Money Laundering (AML) laws already apply, requiring issuers to implement Know Your Customer (KYC) rules and transaction reporting.
- Financial system integration: As stablecoins gain use in payments and remittances, regulators want clear legal definitions and standards to ensure security and reliability.
- Monetary and concentration risks: If a private entity launched a global stablecoin (e.g., Facebook’s Libra/Diem), it could challenge central banks’ control over money. Regulations prevent such unregulated financial power.
In short, regulators seek to maximize stablecoins’ benefits while mitigating risks through strong reserve requirements, transparency and integration with existing financial rules.
Did you know? The collapse of the algorithmic stablecoin TerraUSD (UST) in 2022 also highlighted the risks associated with non-collateralized stablecoins, leading to increased regulatory attention and calls for stricter oversight.
How the US regulates stablecoins
The regulation of stablecoins in the United States remains fragmented, as there is no singular federal framework governing their issuance and operation. Instead, regulatory oversight is distributed among multiple agencies, each applying existing financial laws to different aspects of stablecoin activity. This decentralized approach reflects the broader challenge of categorizing stablecoins within the traditional financial system, as they exhibit characteristics of both payment instruments and investment products.
The US Department of the Treasury
The US Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), treats stablecoin issuers as money service businesses (MSBs), requiring them to register and comply with AML and KYC regulations. These requirements are designed to mitigate illicit finance risks, ensuring that stablecoin transactions do not facilitate money laundering or terrorism financing.
Many stablecoin issuers, such as Circle (the issuer of USDC), operate under state money transmitter licenses to satisfy these regulatory requirements. However, this state-by-state licensing model creates inconsistencies, as compliance obligations vary depending on jurisdiction.
The Securities and Exchange Commission
In cases where a stablecoin is deemed to have investment-like characteristics, it may fall under the jurisdiction of the Securities and Exchange Commission. The SEC has taken enforcement action against issuers such as Paxos (for its Binance USD stablecoin) and Terraform Labs (for TerraUSD), arguing that certain stablecoins function as unregistered securities.
However, the agency has not issued a broad ruling that all stablecoins are securities, leaving significant regulatory ambiguity. This uncertainty is particularly relevant for fiat-backed stablecoins, which function primarily as digital cash rather than investment instruments.
The Commodity Futures Trading Commission
For stablecoins that do not qualify as securities, the Commodity Futures Trading Commission (CFTC) has asserted jurisdiction by classifying them as commodities. In 2021, the CFTC fined Tether $41 million for misleading statements about its reserve backing, establishing a precedent that stablecoin issuers can be held accountable under commodity fraud and manipulation laws.
However, the CFTC’s authority remains limited, as it does not regulate stablecoin issuance or enforce consumer protection standards beyond anti-fraud provisions.
The Office of the Comptroller of the Currency
Banking regulators, including the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, have taken a more indirect role in stablecoin oversight. The OCC has issued guidance allowing national banks to hold stablecoin reserves, provided the assets are fully backed and redeemable.
This has facilitated partnerships between stablecoin issuers and traditional banks, integrating stablecoins into the existing financial system. The Federal Reserve, while not directly regulating stablecoin issuers, has expressed concerns over their potential impact on financial stability and has advocated for federal oversight of non-bank stablecoin providers. Many legislative proposals have sought to give the Fed a formal role in supervising stablecoins, particularly as their use in payments expands.
New York’s Department of Financial Services
In the absence of a federal regulatory framework, state-level regulation has played a critical role in shaping stablecoin oversight. New York’s Department of Financial Services (NYDFS) has established some of the most stringent requirements, mandating that USD-backed stablecoins maintain full reserves and allow 1:1 redemption. This approach has served as a model for potential federal regulation.
Other states, such as Wyoming and Texas, have pursued crypto-friendly policies that provide alternative regulatory paths for stablecoin issuers. However, the divergence in state-level approaches highlights the broader challenge of regulatory fragmentation, as issuers must navigate differing requirements across multiple jurisdictions.
The US approach to stablecoin regulation remains a work in progress. While existing laws provide partial oversight through money transmission, securities, commodities and banking regulations, there is no unified federal framework governing stablecoin issuance and use.
Did you know? Ether has become a symbol of regulatory ambiguity in the US, with its status still lying somewhere between a currency, a commodity and a security.
Timeline of key regulatory developments
To put things in perspective, here’s a timeline of major events and initiatives in stablecoin regulation, focusing on the US, up to March 2025:
- June 2019: Facebook announces Libra, a global stablecoin proposal, raising worldwide regulatory concerns. US Congress holds hearings, fearing threats to financial stability and privacy. Under pressure, the project (later renamed Diem) is shelved, sparking global discussions on stablecoin oversight.
- September 2020: The US OCC clarifies that federally chartered banks can hold reserves backing fiat-pegged stablecoins, integrating them into the traditional banking system.
- October 2021: The CFTC fines Tether $41 million for misleading reserve claims, marking a significant enforcement action. Subsequently, the President’s Working Group recommends that Congress require payment stablecoin issuers to operate like insured banks to protect consumers and the financial system.
- May 2022: The collapse of the algorithmic stablecoin TerraUSD erases billions in value, prompting US Treasury Secretary Janet Yellen to urge Congress for swift legislation, citing stablecoin risks. In response, New York’s Department of Financial Services mandates 1:1 backing and redemption at par for USD stablecoins under its oversight.
- February 2023: The New York Department of Financial Services orders Paxos Trust to halt issuing Binance USD (BUSD), citing regulatory concerns. Concurrently, the SEC suggests BUSD is an unregistered security, highlighting the ambiguous classification of stablecoins in US law.
- March 2023: Silicon Valley Bank’s collapse affects Circle’s USDC reserves, causing USDC to briefly lose its $1 peg. Although it quickly repegs, the event underscores custody risks and the impact of banking vulnerabilities on stablecoins, accelerating regulatory discussions on reserve management.
- July 2023: The US House Financial Services Committee approves the Clarity for Payment Stablecoins Act of 2023, proposing a comprehensive framework for stablecoin issuance by both banks and licensed non-banks, with strict reserve requirements and federal oversight.
- Mid/late 2024: Stablecoin regulation remains a priority. Senators Cynthia Lummis and Kirsten Gillibrand introduce the bipartisan Payment Stablecoin Act, aligning with previous proposals on reserve requirements and oversight. The SEC drops its investigation into Paxos’ BUSD, signaling a shift in regulatory stance.
- February 2025: On Feb. 4, 2025, Senator Bill Hagerty introduces the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), co-sponsored by bipartisan lawmakers. The bill proposes a unified regulatory framework, allowing stablecoin issuers to be chartered at both federal and state levels, with oversight from regulators like the Federal Reserve and OCC.
- March 2025: The US Senate Banking Committee approves the GENIUS Act with an 18–6 vote, including support from five Democrats. The bill moves forward in the legislative process, with analysts expecting further debates and potential enactment before the end of 2025.
Did you know? Cantor Fitzgerald, a major financial services firm, has played a significant role in the stablecoin market by acting as a custodian for Tether’s reserves, holding assets backing the stablecoin’s value. In January 2024, CEO Howard Lutnick confirmed this relationship, stating, “I hold their Treasuries, and they have a lot of Treasuries.”
US vs. global approaches to stablecoin regulation
As explored, the US has yet to establish a single regulatory framework for stablecoins. Instead, various agencies apply existing laws related to securities, commodities, banking and financial crime. But how do these efforts compare to those of other countries?
The European Union
The European Union adopted a comprehensive strategy through its Markets in Crypto-Assets (MiCA) regulation, which was passed in 2023. MiCA establishes a pan-European licensing framework, requiring stablecoin issuers to maintain 100% reserves, submit to strict regulatory oversight, and comply with transparency standards.
USD-backed stablecoins face transaction volume caps to prevent them from undermining the euro, and interest-bearing stablecoins are banned to ensure they function strictly as payment instruments.
Unlike the US, which still relies on enforcement, the EU’s uniform approach provides legal certainty across all member states, setting a potential global benchmark for stablecoin regulation.
The United Kingdom
The UK, post-Brexit, has been crafting its own crypto regulations under the Financial Services and Markets Act (2023). Unlike the US, the UK has explicitly defined fiat-backed stablecoins as a form of digital money that can be used for payments. The Bank of England oversees systemic stablecoin issuers (those with potential financial stability risks), while the Financial Conduct Authority (FCA) manages consumer protection.
Issuers must maintain reserves with reliable institutions such as the Bank of England, ensuring 1:1 redemption rights. Although the UK’s final regulations are still being refined, its strategy focuses on stablecoin integration into the existing payments system while maintaining banking-grade safeguards.
Asia
Japan was among the first to establish clear stablecoin rules. In June 2022, it passed a law defining stablecoins as “digital money,” restricting issuance to licensed banks, trust companies and registered money transfer agents. This ensures 1:1 redemption rights for holders while banning algorithmic and offshore stablecoins from the market. Japan’s conservative stance aims to prevent another Terra-like collapse by allowing only heavily regulated institutions to issue stablecoins.
Singapore has taken a measured approach, balancing innovation with oversight. Under its Payment Services Act, all crypto firms must be licensed. In late 2022, the Monetary Authority of Singapore (MAS) proposed specific rules for single-currency stablecoins, including 100% reserves, independent audits and strict capital requirements. Full regulatory guidelines are expected in 2025, reinforcing Singapore’s role as a regulated fintech hub.
Hong Kong has aligned itself with global regulatory trends, announcing in 2024 that stablecoin issuers must obtain licenses under its new crypto framework. Algorithmic stablecoins are banned, and issuers must maintain full reserve backing with independent attestations. Hong Kong’s approach mirrors that of New York and Singapore, emphasizing strict transparency and redemption rights to position itself as a leading crypto-friendly financial hub.
Other global efforts
Many countries are actively evaluating stablecoin rules. Australia and Canada are exploring whether to regulate stablecoins under securities or payment laws, while China has outright banned most crypto activity, including yuan-linked stablecoins, favoring its central bank digital currency (CBDC). International bodies such as the Financial Stability Board (FSB) under the G20 are pushing for bank-like regulations on stablecoins if they become widely used in global finance.
Stablecoin regulation: The road to clarity in the US
Stablecoin regulation in the US stands at a turning point.
After years of debate, bipartisan support is building for a federal framework that could bring long-overdue clarity. The introduction and approval of the GENIUS Act in early 2025 signals growing political consensus on key regulatory principles, such as 100% reserve backing and clear issuer oversight. With parallel efforts in the House, legislation appears closer than ever to becoming reality.
Regulators have been preparing for this shift. Agencies like the Federal Reserve and OCC are laying groundwork for supervision, while major stablecoin issuers — anticipating regulation — have already adopted transparency measures, regular audits and strict reserve management. This should ease the transition once new laws are in place.
The impact of clear regulations will be significant. While some issuers may struggle to meet compliance, others — particularly those already following strict reserve and disclosure requirements — stand to benefit. Greater legal certainty could drive institutional adoption, encourage stablecoin-powered payment solutions, and even pave the way for bank-issued stablecoins. At the same time, policymakers must strike a delicate balance: ensuring stability and consumer protection without stifling innovation or pushing activity offshore.
President Donald Trump has actively opposed the development of a US CBDC. In January 2025, he signed Executive Order 14178, titled “Strengthening American Leadership in Digital Financial Technology,” which bans the establishment, issuance or promotion of a CBDC in the United States. Trump has expressed concerns that a CBDC could grant the federal government excessive control over citizens’ finances.
As such, stablecoins are likely to remain the dominant vehicle for digitized dollars in the near term, reinforcing the need for robust, harmonized oversight.
As the US moves toward formal legislation, it lags behind regions like the EU, UK and Asia, where comprehensive stablecoin regulations are already in effect. The coming months will determine whether the US catches up or risks losing its regulatory influence over a rapidly growing sector.
One thing is clear: Stablecoins are too important to remain in legal limbo. The coming regulatory shift will define their role in finance for years to come, shaping their integration into both traditional banking and the digital economy.
With sensible regulation, stablecoins could become a foundational pillar of modern payments — trusted, stable and backed by the security of clear legal standards.