Global Financial Regulators Scrutinize Stablecoin Backing Standards
Central banks worldwide are intensifying their examination of stablecoin asset reserve requirements as the $255 billion market continues to grow exponentially. The Bank for International Settlements (BIS), often called the central bank for central banks, has issued stark warnings about the potential risks stablecoins pose to financial stability without proper regulatory frameworks.
BIS Report Highlights Systemic Concerns
In its Annual Economic Report 2025, the BIS identified critical weaknesses in stablecoin operations. The report found that stablecoins perform poorly on three key tests for serving as the monetary system's mainstay: they lack singleness and elasticity, trade at varying exchange rates, impose cash-in-advance constraints, and create tension between promised par convertibility and profitable business models.
'The continued growth of stablecoins could lead to financial stability risks, including potential fire sales of safe assets,' the BIS cautioned in its assessment.
US Regulatory Framework Takes Shape
The United States has taken significant steps toward comprehensive stablecoin regulation with the passage of the GENIUS Act in July 2025. This bipartisan legislation establishes the first federal regulatory framework for payment stablecoins, requiring issuers to maintain 1:1 reserves in US dollars or short-term Treasuries.
Federal Reserve Governor Christopher J. Waller emphasized the importance of proper backing in his February 2025 speech, noting that 'stablecoins must demonstrate both clear use cases and viable business models to succeed. Issuers currently generate revenue primarily through interest rate spreads between their zero-interest liabilities and interest-earning reserve assets.'
Market Impact and Treasury Concerns
Research from the BIS reveals that dollar-pegged stablecoins now hold over $200 billion in assets, surpassing major foreign investors' holdings of short-term US securities. This growing influence means stablecoin inflows reduce 3-month Treasury yields by 2-2.5 basis points within 10 days, while outflows have a larger asymmetric effect, raising yields by 6-8 basis points.
The BIS working paper found that 'Tether (USDT) contributes most significantly to these effects, followed by Circle (USDC), highlighting stablecoins' growing role as major players in safe asset markets.'
Global Coordination Efforts
Regulatory bodies across major economies are coordinating their approaches to stablecoin oversight. The European Central Bank has suggested that algorithmic stablecoins should be treated as unbacked crypto-assets, while Asian financial authorities are developing their own frameworks.
As one regulatory expert noted, 'The challenge lies in balancing innovation with financial stability. We need standards that protect consumers without stifling the potential benefits of digital currencies.'
The ongoing review of stablecoin backing requirements represents a critical moment for the future of digital finance, with central banks seeking to establish standards that ensure stability while accommodating technological innovation.