Is Global Consensus on Stablecoins Within Reach?

Crypto regulation worldwide is a patchwork landscape, and progress has moved in fits and starts. Yet there’s an emerging consensus around requirements for fiat-backed stablecoin arrangements. Both industry and governments are coalescing around the standards that must be in place in order for stablecoins to become a backbone for payments and financial services, and to live up to being truly “stable.”

Some of this progress has been led by jurisdictions like the EU, whose soon-to-be finalized comprehensive framework for crypto regulation includes a heavy focus on stablecoins, and the United Kingdom, where the government last year announced proposals to regulate the issuance, payment, and custody of fiat-backed stablecoins. The United States may be catching up as well, with signs of movement on long-stalled efforts to put stablecoin legislation in place.

International organizations and standard-setting bodies are close behind, too. The Financial Stability Board plans to release its high-level recommendations on the regulation, supervision, and oversight of global stablecoin arrangements in July, and discussions among G20 finance ministers and central banks on internationally coordinated rules for crypto – especially stablecoins – are already underway.

But what does this consensus look like? While there’s not yet a commonly accepted international standard for stablecoin arrangements, core principles around transparency, meaningful consumer protections, and risk management have gained traction with policymakers, regulators, and industry. And these elements align closely with the Stellar Development Foundation’s recommendations for stablecoins, which we’ve articulated in our asset issuance framework and Congressional testimony:

• Stablecoin reserves should be held in the same currency as the token, subject to independent third-party attestation that is made publicly available on a regular basis, and at least 100% backed by fiat money or a combination of fiat money and high-quality liquid assets such as short-term government bonds, held in regulated banks and financial institutions.
• Stablecoin issuers should provide a clear guarantee of 1:1 redeemability, segregate customer and corporate funds, and be subject to disclosure and transparency requirements, including disclosure of redemption rights and reserve composition.
• Stablecoin minting and burning should be automated, to the greatest extent possible, to reflect reserve holdings.
  

International alignment on basic principles and standards for stablecoin arrangements is essential given the borderless nature of blockchain technology and the important role stablecoins can play in cross-border transactions. Stablecoins have the potential to modernize the global payments landscape, harnessing the accessibility, speed, and transparency of blockchain while maintaining the stability of fiat. But that promise can only be realized with the right regulatory and policy frameworks in place – ones that encourage competition, innovation, and consumer protections. We’re pleased to see decision makers around the globe moving in that direction.