Regulatory clarity has long been a key barrier to the growth of stablecoins. Now, markets worldwide are gaining momentum as governments introduce frameworks designed to provide the security, trust, and infrastructure these digital assets need to be taken seriously.

Stablecoins are cryptocurrencies designed to maintain a stable value by pegging to fiat currency, commodities, or other financial instruments. Their reduced volatility makes them a reliable option for payments and daily transactions. However, a lack of clear policy, transparency issues, and reputational risks have slowed adoption. Recently, regulatory shifts have boosted investor confidence and encouraged wider cryptocurrency adoption.

A new digital financial system

Crypto is no longer just for transactions, it is reshaping financial system infrastructure. Crypto exchanges are evolving into universal trading platforms, reducing the need for traditional brokerage accounts.

Younger generations are driving demand for crypto, fuelled by digital expectations for financial services, cost-effective alternatives to traditional brokers, and frustration with regulatory delays. Even established brokers are moving toward crypto integration, such as enabling stablecoin deposits for faster, cheaper funding. Unlike traditional international transfers, which can take days and involve multiple intermediaries with hidden fees, blockchain-based stablecoins can transfer funds across borders in seconds at far lower cost.

The current Stablecoin market

Europe’s market capitalisation is less than 350 million euros and dollar-pegged stablecoins dominate the market, making up a majority share of 93.3%. Held by Tether with 67% of market share, equalling $164.4B of the stablecoin market, and USD coin with 26.4% of market share and $64.7B market cap.

Fiat-backed stablecoins are driving demand due to their stronger regulatory compliance and consumer preferences for traditional currency. However, Dai, a crypto-backed stablecoin by MakerDAO, holds the 4th largest market share, and offers a decentralised approach by maintaining its peg through overcollateralisation with cryptocurrency assets, which provides transparency and dollar stability.

Stablecoins – regulatory analysis

The US is currently at an advantage due to its early adoption of the stablecoin market and has the largest market, accounting for 47% of the global stablecoin transaction volume. India holds the most significant number of stablecoin holders globally, and Nigeria, Indonesia and Brazil are also key regions contributing to global stablecoin adoption. Since 2024, Europe’s market share has significantly risen from 16% to 34% in 2025.

The US

US President Donald Trump recently approved a regulatory regime centred on strengthening the dollar's status as the global reserve currency. Proposals suggest stablecoin issuers should adhere to banking standards, including reserve audits and redemption rights.

President Donald Trump has also recently mentioned the possibility of replacing Fed Chair Jermone, which could lead to a reduction in the benchmark federal funds rate, which could result in downward pressure on broader borrowing costs.

The US plans to capitalise on its position as global leader to finance its debt more cheaply and increase geopolitical dependency, which could increase borrowing costs for Europe and reduce monetary policy autonomy. The European Central Bank's monetary conditions could also be weak-end if dollar-backed stablecoins dominate the market for payments or savings.

Europe

Europe has begun to take steps towards a policy in Markets in Crypto Assets regulation (MiCA), which includes explicit rules for stablecoin issuers (E money tokens and asset referenced tokens), setting licensing, reserve, and operational requirements.

The MiCA was agreed upon in 2023, with a phased implementation plan and provisions, expected to take effect throughout 2025. The regulation will create a unified regulatory framework across the European Union, which is critical at this stage for the development of euro-backed stablecoins to build their global market share. The regime will involve those issuing stablecoins to obtain authorisation from the EU regulatory body, maintain firm and segregated reserves, and undergo risk management, governance, and transparency checks.

Some EU countries are beginning to lay the groundwork to implement MiCA or go beyond it. France has itself as a hub in this new regime, conducting pilot programs for regulated digital asset markets and preparing national guidance for stablecoin issuers. Germany is gearing up to enforce MiCA standards, including supervisory readiness and licensing processes. And Luxembourg and Malta are both well-known for issuing crypto regulations and are advancing initiatives to attract compliant stablecoin firms under MiCA’s regime.

UK

The UK is also following suit, and the UK Financial Conduct Authority (FCA) launched a consultation on 28th May 2025 to encourage feedback on its proposed rules and guidance for issuing qualifying stablecoins and an additional consultation paper on the regime for crypto assets.

The regulation has been centred upon the FCA’s proposition to treat stablecoins as money-like instruments. It has outlined that a firm that is both issuing e-money and qualifying stablecoins will need permission for both activities.

The FCA aims to publish final regulations in 2026. Due to the UK’s highly regulated environment, it is essential that compliance is at the forefront of the development of stablecoins, and a lack of regulatory oversight could push innovation offshore. However, industry observers argue that compared to jurisdictions like Singapore, the EU and the US, the UK is moving more cautiously.

Other Active Jurisdictions

Singapore and Hong Kong are developing licensing schemes for digital payment tokens, including stablecoins, requiring regulation around reserve audits, custody, and AML/KYC. And Japan, Switzerland, and Canada are also working on or adapting existing financial frameworks to treat stablecoins similarly to e money or tokenised deposits, often under banking or securities law.

In summary

Global regulation is still evolving, but momentum in major markets signals a clear shift in governmental attitudes toward digital assets. Governments implementing high standards for compliance, risk management, and operational governance are creating a stronger, more transparent ecosystem — and setting the stage for institutional adoption.

If these frameworks succeed, stablecoins could move from a niche payment solution to a pillar of the global financial system, driving innovation in digital finance for years to come.

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