Report argues for global coordination on stablecoins
Stablecoins are gaining populatiry as a form of cryptocurrency but the current fragmented regulatory frameworks are struggling to keep up with this trend. This is according to a recent article published in Study Times by Associate Dean of the School of Software at Fudan University in China.
Han classified stablecoins into three categories: backed by fiat currency, by other crypto on the blockchain, and algorithmic stablecoins. Each model brings unique technical and legal risks, especially due to the lack of uniform licensing requirements or standardised rules for reserve disclosure.
Trust in stablecoins depends on multiple factors, including the stability of the pegging mechanism, the verifiability of the underlying reserves, and the presence of applicable regulations.
While blockchain technology promotes transparency through verifiable smart contracts and easily traceable transactions, Han warned this is not enough to guarantee accountability.
He pointed out that strong legal and institutional frameworks are needed to enhance credibility. To address these concerns, the article proposed setting up mechanisms for real-time verification and auditing of reserves, with third party oversight to ensure consistency across jurisdictions. In addition, Han recommended embedding legal restrictions directly into smart contracts, so that compliance would be automatically enforced.
Han also discussed national challenges associated with stablecoins, such as the vulnerability of new users to scams due to their lack of familiarity with digital assets. He calls for the expansion of public education initiatives on digital finance and the integration of stablecoin risks into national educational programmes.
Looking ahead, Han predicted a significant increase in the global supply of stablecoins, which could reach several trillion dollars as their applications expand into payments, trade, and tokenised assets.
Without coordinated rules and shared infrastructures, regulators risk persistent blind spots in the oversight of stablecoins. Han pointed to the need for joint supervision and system-level alignment. In this way, regulators foster innovation and ensure safety within the stablecoin ecosystem.
Although some countries have launched pilot projects, a uniform mechanism to monitor cross-border flows of stablecoins is still lacking.
Han argued that future coordination could involve standardising specific aspects of the stablecoin system, such as reserve disclosure and contract verifiability. This could pave the way for cross-border frameworks similar to those used in banking or trade compliance.
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