Fragmented Stablecoin Regulations Favor Large Firms Over Smaller Players

Stablecoin regulations across major jurisdictions remain unaligned, creating a fragmented landscape that favors large, well-capitalized entities while posing challenges for smaller market participants. Europe’s Markets in Crypto-Assets (MiCA), the U.S. GENIUS Act, and Hong Kong’s recently finalized Stablecoin Ordinance each take distinct approaches to oversight. While these frameworks offer clarity on reserve requirements, licensing, and compliance, their differences introduce operational friction and increase the cost of global expansion for stablecoin issuers [1].

According to Udaibir Saran Das, a visiting professor at the National Council of Economic Research, the divergent legal models force issuers to create parallel compliance structures. This includes separate legal entities, audits, and governance mechanisms for each jurisdiction, which can be especially burdensome for smaller firms. Das highlighted that Hong Kong’s holder-level Know Your Customer (KYC) requirements and strict licensing conditions push wallet providers to rebuild infrastructure, adding further complexity [1].

Krishna Subramanyan, CEO of Bruc Bond, warned that such fragmentation risks making stablecoins "jurisdiction-bound," limiting their usability and trust outside specific regions. She argued that “compliance asymmetry” could concentrate market power over time, with only larger firms able to bear the costs of navigating multiple regulatory regimes [1].

The competitive nature of global regulatory environments means that jurisdictions are using stablecoin rules as tools for economic diplomacy. Subramanyan noted that the U.S. positions the GENIUS Act as a means to establish itself as the “undisputed leader” in crypto, while Hong Kong, the UAE, and Singapore all aim to attract capital and talent through favorable yet jurisdiction-specific licensing frameworks [1].

Despite these divergences, Subramanyan and Das suggested that pressure for regulatory convergence could emerge as cross-border stablecoin volumes increase and financial stability concerns grow. They emphasized the role of institutions like the Financial Stability Board and the Bank for International Settlements in defining baseline standards for reserves, disclosures, and risk mitigation [1].

While coordination is complex, Das argued it is necessary to prevent regulatory arbitrage from becoming the dominant business model. He proposed the formation of supervisory colleges with shared Anti-Money Laundering protocols as a potential path forward. However, it remains unclear which regulatory model—GENIUS, MiCA, or Hong Kong’s—will serve as a blueprint for global standardization [1].

GENIUS is likely to influence global regulatory thinking through its structured approach to reserves and redemption rights, shaping expectations and compatibility decisions. Meanwhile, Hong Kong’s conservative licensing model could indirectly set global norms by establishing a high bar for cross-border operations [1].

In the short term, consolidation in the stablecoin space is expected as smaller firms struggle to meet compliance costs. The regulatory environment, while fragmented, continues to evolve as global adoption of stablecoins grows and financial risks become more apparent [1].

Source:

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