Fragmented stablecoin regulations favor large firms over smaller players

Global stablecoin regulations remain fragmented, creating challenges for market participants while offering advantages to larger, well-capitalized firms. The divergence in regulatory approaches—seen in Europe’s Markets in Crypto-Assets (MiCA), the U.S.’s GENIUS Act, and Hong Kong’s recently finalized Stablecoin Ordinance—has resulted in inconsistent compliance requirements, reserve standards, and licensing conditions. These differences compel stablecoin issuers to establish parallel legal and operational structures, increasing costs and complexity, particularly for smaller firms [1].

Krishna Subramanyan, CEO of Bruc Bond, highlighted that stablecoins risk becoming “jurisdiction-bound,” limiting their usability and trust beyond specific regions. Udaibir Saran Das, a visiting professor at the National Council of Economic Research, further explained that these frameworks impose distinct operational frictions, such as divergent reserve requirements and custody arrangements. For example, while MiCA allows non-bank entities under the supervision of the European Banking Authority, the U.S. restricts issuance to banks and federally licensed institutions under GENIUS. Hong Kong’s approach is even more restrictive, mandating licensing by the Hong Kong Monetary Authority (HKMA) and imposing rigorous compliance measures [1].

Such regulatory complexity favors large firms with the resources to navigate multiple frameworks. Smaller stablecoin issuers face greater hurdles in meeting divergent compliance costs, which could force them out of the market or into acquisition deals with larger players. Subramanyan noted that this “compliance asymmetry” risks concentrating market power and stifling innovation over time [1].

Regulators globally appear to be using stablecoin rules as a tool for economic diplomacy, with jurisdictions competing to attract capital, talent, and technological leadership. The U.S., for instance, aims to position itself as the “undisputed leader” in the crypto space through the GENIUS Act, while Hong Kong, the UAE, and Singapore offer frameworks that stimulate adoption but remain uniquely tailored to their local conditions [1].

Despite these competitive dynamics, the need for coordination is increasing as stablecoin adoption expands. Subramanyan argued that as stablecoins become more integrated into global financial systems—particularly in payments and credit markets—regulatory gaps could lead to significant economic externalities. Das emphasized that aligning stablecoin laws will require collaborative operational frameworks and shared standards for anti-money laundering (AML) protocols [1].

While convergence is seen as necessary, it remains challenging. Institutions like the Financial Stability Board and the Bank for International Settlements are positioned to help establish baseline standards. However, in the short term, the market is likely to see continued consolidation, with smaller players struggling to compete against larger firms with global compliance capabilities [1].

GENIUS, despite not overriding existing laws, is expected to shape global standards through its structured approach to reserves, redemption rights, and issuer accountability. Similarly, Hong Kong’s conservative licensing model, though limited in scope, could influence global norms as major financial centers seek the highest standards for cross-border operations [1].

Source: [1] Stablecoin laws aren’t aligned — and big fish benefit (https://coinmarketcap.com/community/articles/689b56c9668f434552362dc2/)