Developing the regulatory ecosystem: The evolution of stablecoin

Min-Si Wang

Stablecoins were created to solve the fundamental problem of high volatility and convertibility between fiat and digital assets. Stablecoin is a digital asset that represents a constant 1:1 value with a fiat currency such as the dollar or euro. As blockchain-based assets, stablecoin enables fast transactions and has become a staple trading tool for cryptocurrency traders. Stablecoin circulation has grown exponentially with the rapid growth of the crypto market since its inception in 2014. By February 2021, over US$40 billion of market capitalisation in stablecoins were in circulation (see Figure 23.1).

Regulation in this area is developing rapidly. While there are to date no unified stablecoin regulations, the rapid adoption of the technology has spurred government agencies such as the Financial Crimes Enforcement Network (FinCEN) and the Office of the Comptroller of the Currency (OCC) in the US to provide guidance that stablecoin providers can use to model their internal practices. In fact, many stablecoin providers have already started down the road of self-regulation by actively providing comments to the regulatory agencies and following existing regulations around money