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KuCoin Ventures Report: Understanding Stablecoins: Insights into the Global Regulatory Landscape, Policy Dynamics, and Future Outlook

2025/06/03 12:49:12

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Understanding Stablecoins: Insights into the Global Regulatory Landscape, Policy Dynamics, and Future Outlook

Authors: KuCoin Ventures (Claude, Mia, Oasis )

1. Deconstructing Stablecoins: Value Anchor and Cornerstone of the Digital World

1.1 Stablecoins: Conceptual Origin, Core Mechanisms, and Technical Decoding

Stablecoins, as a special type of cryptocurrency in the digital asset realm, are corely designed to anchor to a "stable" asset or a basket of assets through sophisticated mechanisms and advanced technical means, thereby maintaining their relative value stability. This characteristic aims to effectively mitigate the inherent high volatility risks of mainstream cryptocurrencies like Bitcoin, thus endowing stablecoins with immense potential to serve as reliable mediums of exchange, units of account, and stores of value in the digital economy.
 
Reviewing their development, in the early stages, stablecoins represented by USDT primarily addressed the pain point of offshore exchanges lacking traditional fiat access licenses, which prevented them from directly conducting transactions in fiat currencies like the US dollar. They were widely used as the unit of account and core trading medium in crypto asset trading pairs, greatly promoting the initial popularization and application of stablecoins in Centralized Exchange (CEX) scenarios. After 2020, with the vigorous development of innovative applications such as Decentralized Finance (DeFi), on-chain gaming (GameFi), and Social Finance (SocialFi), the application scenarios for stablecoins rapidly expanded from CEX to the broader on-chain ecosystem, and their importance has grown increasingly.
 
The operational mechanism of stablecoins heavily relies on the support of blockchain technology and smart contracts. Blockchain technology provides stablecoins with a decentralized, transparent, and immutable distributed ledger, completely recording their entire lifecycle, including issuance, circulation, and transactions. Stablecoins can be deployed on various public blockchain networks such as Ethereum, Tron, and Solana, while some utilize their own dedicated blockchains; these choices directly impact their transaction efficiency, operational costs, and network scalability.
 
Smart contracts are the key technological elements for realizing the core functions of stablecoins. They can not only automate lifecycle management processes such as minting (i.e., issuance) and burning (i.e., redemption) of stablecoins but also precisely handle complex core logic like collateralization, lending, liquidation, and price stabilization algorithms. It can be said that the technical implementation solution for a stablecoin directly determines its transparency, security, auditability, interoperability with other digital assets and protocols, and ultimately ensures the effective operation of its core value stabilization mechanism.

1.2 Deconstructing Stablecoins: Three Main Types and Mechanisms

Based on their stabilization mechanisms and collateral, stablecoins can be primarily categorized as follows:
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In the subsequent discussions in this article, we will primarily focus on stablecoins in the narrow sense, i.e., fiat-collateralized stablecoins, especially those issued by issuers that are already regulated or seek to be regulated.

1.3 Why Have Stablecoins Broken Out? — Application Advantages, Development Trajectory, and Market Data Insights

The concept of stablecoins can be traced back to around 2014, aiming to solve the problem of drastic price volatility in early cryptocurrencies. Since then, the stablecoin market has undergone significant growth and evolution:
  • Early Exploration and the Rise of Fiat-Collateralized Models: USDT, a US dollar-pegged stablecoin issued by Tether and launched in 2014, was one of the earliest and is currently the largest stablecoin by market capitalization, pioneering the fiat-collateralized stablecoin model.
  • Enhancement of Transparency and Compliance: As the market developed, demands for reserve asset transparency and compliance increased, leading to the emergence of stablecoin projects like USD Coin (USDC) issued by Circle, which place greater emphasis on audits and regulatory compliance.
  • The Catalytic Role of DeFi: The explosive growth of Decentralized Finance (DeFi) greatly propelled the demand for and application scenarios of stablecoins, making them core tools for lending, trading, and liquidity provision within DeFi protocols.
  • Experiments and Challenges of Algorithmic Stablecoins: Algorithmic stablecoins, as an innovative attempt, have undergone multiple market tests. Some projects failed due to design flaws or market shocks, highlighting their inherent risks. The collapse of the Terra ecosystem's Luna coin and UST stablecoin in 2022 is a widely known example.

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Data source: rwa.xyz，2025/05/28
  • According to data from rwa.xyz, as of May 28, 2025, the total market capitalization of major global fiat-collateralized stablecoins reached $234.875 billion.
  • Among these, USD-pegged stablecoins are dominant, with the leading stablecoins USDT and USDC having a total issuance of $209.45 billion.
  • The application scenarios for stablecoins have expanded from their initial role as a trading medium on centralized exchanges to multiple fields such as cross-border payments, DeFi lending, and on-chain game payments.

1.4 "A Tall Tree Catches the Wind": Why Do Stablecoins Attract Global Regulatory Attention?

Stablecoins have rapidly risen within the digital asset ecosystem due to their characteristic of anchoring to stable value, but their rapid growth and unique attributes have also made them a focal point for global regulation. Regulatory concerns primarily stem from four core risks:
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According to a report as of March 2025, Tether Holdings Limited holds $120 billion in U.S. Treasuries, exceeding the total U.S. Treasury holdings of Germany.
 
  1. Financial Stability Risk: Currently, Tether's stablecoin reserves, directly and indirectly holding U.S. Treasuries, have reached $120 billion, a scale that even surpasses that of countries like Germany and the UAE. If large-scale stablecoins are improperly managed in terms of reserves or face a run, it could impact the traditional financial system. Their reliability as payment instruments also pertains to payment system stability, concerns exacerbated by incidents like LUNA / FTX.
  2. Consumer and Investor Protection Issues: Information asymmetry, non-transparent reserves, and unclear redemption mechanisms can harm user rights and interests, with failed algorithmic stablecoin cases serving as particular warnings.
  3. Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) Challenges: The rapid cross-border flow characteristic of stablecoins necessitates strict AML/CFT compliance.
  4. Potential Impact on Monetary Sovereignty and Policy Transmission: Widespread use of foreign currency-backed stablecoins could weaken a nation's domestic currency status and the effectiveness of its monetary policy.
Facing these challenges, global regulatory actions have significantly accelerated. International organizations such as the IMF, BIS, and G20 have called for enhanced regulation and international cooperation, adhering to the "same business, same risk, same rules" principle. Major economies like the United States, the European Union, Japan, Singapore, and the Hong Kong Special Administrative Region of China have all begun to formulate or implement regulatory frameworks for stablecoins, with a trend towards clearer, more standardized, and stricter approaches. Although paths may vary, the core objectives are consistent: to effectively prevent risks, protect consumers, and maintain financial stability while encouraging innovation. Understanding these regulatory frameworks is crucial for grasping the future of stablecoins.

2. Global Stablecoin Regulatory Landscape: Deep Dive into Policy Convergence and Distinctive Paths

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Sources: Regulatory acts/drafts from various jurisdictions. Data compiled by: KuCoin Ventures
Full PDF Download(Google Drive):https://bit.ly/3Zdsvig

2.1 Convergence and Consensus: Core Principles of Global Stablecoin Regulation:

  • Emphasis on 1:1 Reserves and High Liquidity: Major jurisdictions all emphasize that stablecoin issuers must hold sufficient, high-quality, highly liquid reserve assets to ensure value stability and redeemability. U.S. Treasury bonds, cash, and cash equivalents have become widely recognized core reserve assets.
  • Strengthening Prudential Supervision of Issuers: Imposing stricter licensing, capital, governance, and risk management requirements on stablecoin issuers, with a trend towards bringing them under regulatory frameworks similar to those for banks or payment institutions.
  • Enhancing Transparency and Audit Requirements: Mandating regular disclosure of reserve asset composition, undergoing independent audits, and reporting to the public and regulatory authorities to enhance market confidence.
  • Focusing on Consumer Protection and AML/CFT: Placing the protection of user asset security, clarification of user rights, and fulfillment of anti-money laundering/countering the financing of terrorism (AML/CFT) obligations at the core of regulation.
  • Prudent Attitude Towards Specific Types of Stablecoins: For higher-risk types such as algorithmic stablecoins and endogenously collateralized stablecoins, regulators generally adopt a cautious or even prohibitive stance.

2.2 Showcasing Unique Approaches: A Distinctive Analysis of Stablecoin Regulation in Major Economies

The U.S. Model——Anchoring Dollar Hegemony: The U.S. approach to stablecoin regulation is uniquely characterized by its strategic intent to reinforce U.S. dollar dominance and support national fiscal needs, rather than focusing on technical nuances or specific issuance models. By mandating 100% backing with highly liquid U.S. dollar assets, primarily short-term Treasuries, and imposing strict limitations on their financial attributes (no interest/yield, non-security status), the U.S. seeks to harness digital asset innovation to serve core national interests. This framework positions stablecoin issuers as potentially significant, "stealth" holders of U.S. debt, surpassing traditional foreign sovereign buyers and providing a new pillar for government financing, thereby intertwining the destiny of stablecoins with the U.S. dollar and its Treasury's credit. The prohibition on interest or yield and the emphasis on their non-security nature are designed to prevent stablecoins from becoming investment-like products, thus avoiding direct competition with traditional banking or SEC-regulated securities and precluding regulatory arbitrage. This state-strategy-driven approach marks a distinctive "U.S. characteristic" in global stablecoin regulation.
 
Japan's Prudential Innovation Model: Japan's regulation of stablecoins (termed "electronic payment instruments") demonstrates a model that balances prudential innovation with local adaptation. Its most unique feature is the creation of a dedicated channel for trust companies to issue stablecoins, termed "Specific Trust Beneficiary Rights," accompanied by a relatively simplified "notification-based" entry system. Correspondingly, its reserve asset management has evolved from an initially extremely strict 100% demand deposit requirement to a gradual relaxation allowing partial investment in low-risk assets like short-term government bonds. This "crossing the river by feeling the stones" approach to adjustment highlights the dynamic nature of its regulation and its prioritization of protecting local investors. Another notable feature is Japan's strict restriction on stablecoin trading intermediaries directly holding users' fiat currency intended for trading (excluding the stablecoins themselves), which contrasts with many international practices that allow exchanges to manage users' fiat balances. Meanwhile, against the backdrop of generally requiring fund transfers to comply with the Travel Rule, Japan specifically exempts stablecoins in the form of "Specific Trust Beneficiary Rights" from Travel Rule obligations, indicating unique considerations for this particular model. Finally, Japan's stablecoin regulation heavily relies on subsequent subsidiary legislations like "Cabinet Office Ordinances" to detail and implement specific execution standards. This gives the overall framework considerable flexibility to adapt to market changes and, in terms of approach, is more of an extension and supplementation of the existing legal architecture.
 
Singapore's Pragmatism and Hub Positioning: The core feature of Singapore's stablecoin regulatory framework is its"labeling" supervision—mandating that single-currency stablecoins (SCS) meeting its high standards use the "MAS-regulated stablecoin" label. This clearly distinguishes them from other digital payment tokens and aims to build a responsible stablecoin hub. Its tiered regulatory approach is also prominent, with clear exemption mechanisms for small issuers with circulation below SGD 5 million. In terms of risk control, Singapore mandates that reserve assets for all "MAS-regulated stablecoins" be held in trust, and the requirements for reserve composition are strict, clear, and more actionable. At the same time, MAS also imposes strict limitations on the business scope of issuers. The initial prudent approach of limiting "MAS-regulated stablecoins" to local issuance in Singapore also reflects its pragmatic strategy to ensure regulatory effectiveness in the early stages of practice.
 
Hong Kong’s Regulatory Framework of “Principle-Based Legislation Followed by Detailed Enforcement”: Hong Kong’s stablecoin regulatory policy in its initial phase focuses on stablecoins pegged to fiat currencies, allowing those pegged to a single or a basket of fiat currencies to fall within the regulatory scope. This provides compliance space for stablecoin products pegged to offshore RMB, facilitating Hong Kong’s role as a bridge in the internationalization of the RMB. The regulatory framework, led by the Financial Services and the Treasury Bureau (i.e., the Hong Kong Monetary Authority, HKMA), establishes legal thresholds through a mandatory licensing regime while reserving flexibility for the HKMA to make dynamic adjustments via guidelines and subsidiary regulations. For instance, the government’s consultation conclusions explicitly state that stablecoins must not pay interest to users to prevent them from evolving into instruments with securities characteristics, which would fall under the Securities and Futures Commission’s (SFC) jurisdiction. Provided there is no profit-sharing or collective investment arrangement, stablecoins themselves do not constitute securities. This reflects Hong Kong’s clear delineation of regulatory boundaries between the HKMA and the SFC in its institutional design, offering the market stable and predictable compliance expectations.
 
The EU’s Pioneering Stablecoin Legislation: The EU’s Markets in Crypto-Assets Regulation (MiCA) establishes the world’s first comprehensive regulatory framework specifically for stablecoins, with implementation commencing on June 30, 2024. It is driven top-down by EU-level authorities and member state agencies, though differences may arise in regulatory enforcement intensity, approval efficiency, and market attitudes across member states. For instance, countries like Austria, with more flexible regulators, are more likely to attract crypto exchanges. MiCA categorizes stablecoins into Asset-Referenced Tokens (ARTs) and Electronic Money Tokens (EMTs), mandating that issuers establish a legal entity in the EU and obtain authorization. Issuers must strictly comply with redemption obligations, capital and reserve requirements, external audits, and anti-money laundering regulations, while being prohibited from paying interest to holders. Algorithmic stablecoins not pegged to real assets are banned from issuance, and all stablecoin reserve assets must be held by independent custodians with regular disclosures. Balancing financial stability and innovation, MiCA avoids a blanket ban on algorithmic stablecoins, demonstrating significant openness to new developments and serving as a benchmark for global crypto policymakers.

3.The Vast Potential of Stablecoins: Payment Revolution, Innovative Integration, and Future Challenges

The rise of stablecoins and the global regulatory attention it has triggered stem from the disruptive advantages that blockchain technology bestows upon them in areas such as account systems, ledger structures, accounting methods, and units of account. Compared to the inherent limitations of traditional cross-border payment methods in terms of cost, efficiency, and clearing and settlement mechanisms, stablecoins exhibit low-cost, near real-time cross-border remittance capabilities, and 24/7 uninterrupted clearing and settlement potential, heralding a profound revolution in the payments sector. This technology-driven efficiency improvement is an unstoppable trend, and regulatory authorities worldwide are actively adapting to this wave by establishing legislation and regulations aimed at paving the way for the healthy development of stablecoins, rather than simply suppressing them.
 
In the current environment of relatively high U.S. Treasury interest rates, stablecoin issuers can earn considerable interest spread income by investing their reserve assets (primarily short-term U.S. Treasury bonds and cash equivalents). This, to some extent, supports their operational costs and has become one of their primary profit models. However, the interest rate environment in financial markets is cyclical. In the future, should major global economies enter an interest rate-cutting cycle, leading to a significant decline in the yields of low-risk assets like short-term U.S. Treasuries, the profit model of stablecoin issuers relying solely on reserve asset interest spreads will face severe challenges.
 
To maintain business sustainability, stablecoin issuers have a strong incentive to explore and develop new revenue streams. Among these, deeply integrating stablecoins into various payment scenarios and generating service fees or value-added income by providing efficient, low-cost payment solutions will become a crucial strategic direction. This means stablecoins will not just be internal trading mediums or value storage tools within the crypto market but will also accelerate their penetration into the real economy and daily transactions, fully leveraging their potential as payment instruments. This transformation will further highlight the advantages of stablecoins over traditional payment methods and drive them to demonstrate transformative power in the following areas.
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Data Source:KuCoin Ventures
 
In traditional cross-border payment scenarios, due to the involvement of multiple parties such as issuing banks, acquiring banks, and card organizations, the process is complex and costly (overall transaction fees are approximately 1.8% to 2.5%, with significant variations depending on the country, region, and card organization), and the settlement cycle typically takes 5-7 business days.
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Data Source:KuCoin Ventures, Solana / SUI / OP Network Browser
 
In contrast, blockchain-based stablecoin payments, such as USDC, can achieve peer-to-peer instant clearing and settlement from user wallets to merchant wallets. If high-speed public chains like Solana or SUI are used, transaction fees can be as low as cents per transaction. If stablecoins achieve network effects in the future, allowing for payments of upstream and downstream goods, as well as basic living and business expenses, merchants could choose to hold stablecoins continuously instead of converting them to fiat currency, which would significantly reduce overall costs of funding and withdrawal. This efficiency and cost advantage indicates that stablecoins have enormous transformative potential in areas such as retail payments, B2B payments, and cross-border remittances.

Conclusion: Moving Forward Amidst Regulation—The Historical Mission and Future Landscape of Stablecoins

  • Necessity and Challenges of Global Regulatory Coordination: The cross-border nature of stablecoins requires enhanced international regulatory cooperation to prevent regulatory arbitrage and systemic risks, but differences in national interests and capabilities pose challenges.
  • Entry of Large Technology Companies and Traditional Financial Institutions: The cautious stance of regulators towards stablecoins issued by large tech companies, along with the active participation of traditional financial institutions, will jointly shape the competitive landscape of the stablecoin market. Visa has already invested in some upstream and downstream infrastructure related to stablecoins, while PayPal has chosen to partner with Paxos to issue its own stablecoin, PayPal USD (PYUSD).
  • Combination of Stablecoins and Real-World Assets (RWA): Compliant stablecoins will become key valuation and settlement tools for RWAs circulating on-chain, and their regulatory implementation is expected to catalyze a new wave of innovation around RWA tokenization.
  • Evolution of 'Onshore' and 'Offshore' Stablecoin Systems: As major economies tighten regulations, a situation may emerge where strictly regulated 'onshore' systems coexist with more diverse and complex 'offshore' ecosystems.
  • Innovation of Stablecoins + Payments + AI: Advancements in artificial intelligence may deeply integrate with stablecoin payments, such as AI-driven automated trading, complex payment logic executed by smart contracts, and applications in machine-to-machine (M2M) and AI agent-to-agent (A2A) economies, bringing unprecedented intelligence and efficiency to payments.
  • Continuous Interaction between Technological Innovation and Regulation: Stablecoin technology (such as integration with DeFi, Layer2 solutions) is still rapidly iterating, requiring regulation to remain adaptive, effectively managing emerging risks while encouraging innovation.
 
Stablecoins, as a financial innovation driven by blockchain technology, are at a critical turning point from unregulated growth to regulated development. While global regulatory bodies recognize their immense potential, they are also highly concerned about the associated risks. In the future, a clear and adaptive regulatory framework will be an important guarantee for stablecoins to play a positive role in payment modernization, financial inclusion, and the development of the digital economy. Their development is not only related to technology and markets but is also deeply embedded in the evolution of the global economic landscape and national strategies.
 
Disclaimer: The content of this report is based on publicly available information and market observations as of May 2025. Stablecoins and related regulatory policies are developing rapidly; the views in this report are for research reference only and do not constitute any investment advice or legal opinion. Readers should make decisions based on their own independent judgment and pay attention to the latest market dynamics and official regulatory guidance.
 
References:
U.S. Department of the Treasury Official Website - U.S. Treasury Holdings Data (2025-03)：https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html
Japan Payment Services Act - Translated Document (Act No. 61 of 2022)：https://www.japaneselawtranslation.go.jp/en/laws/view/4477
Japan Financial Services Agency (JFSA) - Explanatory Document for the Amendment (2503)：https://www.fsa.go.jp/common/diet/217/02/setsumei.pdf
Consultation Conclusions on Legislative Proposals to Implement a Regulatory Regime for Stablecoin Issuers in Hong Kong (July 2024): https://www.hkma.gov.hk/media/gb_chi/doc/key-information/press-release/2024/20240717c3a1.pdf
EU Markets in Crypto-assets Regulation（MiCA）: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023R1114
 

About KuCoin Ventures

KuCoin Ventures, is the leading investment arm of KuCoin Exchange, which is a top 5 crypto exchange globally. Aiming to invest in the most disruptive crypto and blockchain projects of the Web 3.0 era, KuCoin Ventures supports crypto and Web 3.0 builders both financially and strategically with deep insights and global resources.
As a community-friendly and research-driven investor, KuCoin Ventures works closely with portfolio projects throughout the entire life cycle, with a focus on Web3.0 infrastructures, AI, Consumer App, DeFi and PayFi.
 
Disclaimer: This content is provided for general informational purposes only, without any representation or warranty of any kind, nor shall it be construed as financial or investment advice. KuCoin Ventures shall not be liable for any errors or omissions, or for any outcomes resulting from the use of this information. Investments in digital assets can be risky.