The market for stablecoins, cryptocurrencies pegged to fiat currencies, has exploded in 2023. However, most countries still lack regulatory frameworks to govern these digital assets, according to a new report by PwC Global Crypto Regulation.
Only six countries – The Bahamas, The Cayman Islands, Gibraltar, Japan, Mauritius, and Switzerland – had enacted stablecoin legislation as of December 2023, according to analysis from PwC. This comes despite massive growth in the stablecoin market, which reached a valuation of $131 billion this month, according to CoinGecko data.
Challenges In Governing Stablecoins
Stablecoins like Tether and USD Coin have become integral to crypto trading and DeFi platforms. Tether sees higher daily trading volumes than even Bitcoin. Still, few major economies have finalized rules around stablecoins.
The UK, EU, and US have initiated regulatory discussions but have not yet implemented formal oversight. Overall, 40% of the countries PwC assessed have taken no action on stablecoin legislation. This regulatory gap has raised concerns among some policymakers.
Critics argue that pegged cryptocurrencies require strong regulation, given their growing importance and risks. These assets aim to maintain a steady value, often $1 per coin, but experts warn they could face bank run-like panic if sentiment sours.
Recent failures like TerraUSD highlight the need for safeguards around reserves and governance. The FSB and other groups have pushed major economies to hasten rulemaking around systemically important pegged currency. So far, progress remains slow across most jurisdictions. However, some countries appear close to finalizing regulations.
UAE, Hong Kong Among Jurisdictions Finalizing Rules
While pegged cryptocurrency oversight lags globally, select regions aim to implement frameworks soon. The PwC report found that 25% of assessed countries have communicated plans or initiated rulemaking.
The UAE stands out for working to finalize a comprehensive stablecoin law this year. Other jurisdictions like Hong Kong are also looking to establish formal guidelines in the near future. These regulatory developments could pressure other nations to follow suit.
For now, the pegged crypto sector continues operating with little formal governance. But with market size approaching $131 billion, regulators may accelerate efforts to enact prudential oversight. As global standards emerge, more countries will likely pursue stablecoin-specific laws.
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