Systemic Risks Force Global Regulators to Tighten Stablecoin Rules

Israel's Central Bank has signaled a significant shift in its approach to stablecoin regulation, emphasizing the need for enhanced oversight as the sector's systemic risks grow. Governor Amir Yaron, addressing the Bank of Israel's Payments in the Evolving Era conference in Tel Aviv, stated that stablecoins-cryptocurrencies pegged to fiat currencies-can no longer be treated as marginal phenomena. With over $2 trillion in monthly trading volume and a market capitalization exceeding $300 billion, Yaron warned that regulators must now confront the risks posed by these digital assets, which are increasingly embedded in global financial flows.

The central bank's stance aligns with a broader global push to regulate stablecoins, a trend exemplified by Turkmenistan's recent move to legalize and tightly control its cryptocurrency industry. Effective in 2026, Turkmenistan's new law mandates licensing, anti-money laundering (AML) compliance, and cold storage requirements for crypto exchanges, while explicitly prohibiting credit institutions from offering crypto services. The law also grants the central bank authority to authorize or operate distributed ledger systems, potentially steering citizens onto state-monitored infrastructure. This development mirrors efforts in other jurisdictions, including the United Kingdom, where tax reforms aim to ease burdens on decentralized finance participants by deferring capital gains taxes for crypto lenders and liquidity pool users.

Market dynamics further underscore the urgency for regulatory clarity. Stablecoin market capitalization dropped by $2 billion in November, marking the steepest decline since the FTX collapse in 2022. The decline, attributed to concerns over stability and heightened regulatory scrutiny, saw Tether's USDT dominance rise while Ethena's USDe token lost 26.8% of its value. Yaron highlighted the extreme concentration risk in the sector, noting that 99% of global stablecoin activity is controlled by Tether and Circle. This centralization, he argued, amplifies vulnerabilities and necessitates a regulatory framework ensuring 1:1 backing and liquid reserves for stablecoins.

Israel's own digital transformation is advancing rapidly. The Bank of Israel's digital shekel team has published a 2026 roadmap for the central bank digital currency (CBDC), with project lead Yoav Soffer describing it as "central bank money for everything." The roadmap outlines scalable regulatory priorities and hints at potential official recommendations by year's end, positioning the digital shekel as a complement to stablecoin oversight.

As global regulators grapple with the dual challenges of innovation and risk mitigation, Israel's proactive approach reflects a growing consensus: stablecoins, while transformative, demand a regulatory framework that balances flexibility with financial stability. With Turkmenistan's state-centric model and the UK's tax reforms illustrating diverse strategies, the path forward will likely hinge on harmonizing cross-border standards while addressing systemic concentration risks.