Gate Research Institute: Stablecoins Enter the Era of Regulation, Initiating a New Generation of Currency Sovereignty and Financial Hegemony Struggles

Summary

• Stablecoins are divided into three types based on their price anchoring methods: fiat-collateralized stablecoins, cryptocurrency-collateralized stablecoins, and algorithmic stablecoins.
• Currently, the global stablecoin market capitalization has reached $260.728 billion, accounting for about 1% of the nominal GDP of the United States in 2024. The number of users holding stablecoins has exceeded 170 million, representing approximately 2% of the global population, and is widely distributed across more than 80 countries and regions.
• Governments around the world are increasingly focusing on the regulation of stablecoins, with the core legislative motivations encompassing financial stability, monetary sovereignty, and cross-border capital regulation. Economies such as the United States and Hong Kong have successively introduced systematic regulatory frameworks, and global stablecoins have entered an era of strong regulation, reshaping the international financial order and the landscape of monetary power.
• Behind the rise of stablecoins is the covert competition between monetary sovereignty and financial hegemony. As a strategic core resource at the intersection of financial sovereignty, financial infrastructure, and capital market pricing power, stablecoins have become a focal point of financial governance.
• Stablecoins improve financial efficiency, but still face challenges such as anchoring mechanism risks, decentralization contradictions, and cross-border regulatory coordination.

Introduction

On July 18, 2025, the U.S. House of Representatives passed the GENIUS Act with a vote of 308 in favor and 122 against. The CLARITY Act, which regulates the structure of the cryptocurrency market, has been submitted to the Senate, and another bill opposing CBDCs (Central Bank Digital Currencies) was passed by the House vote.

Outside of the United States, countries are rolling out stablecoin policies: Hong Kong will implement the "Stablecoin Ordinance" on August 1, the Bank of Russia is offering crypto custody services, and Thailand has launched a cryptocurrency sandbox. These developments mark the entry of stablecoins into the regulatory era, officially initiating the great power competition over stablecoins.

Given that the legislation of stablecoins has become a focal point in financial governance, this article aims to analyze the reasons behind the stablecoin legislation of various governments, compare the similarities and differences in the bills, and assess the impact of stablecoin compliance on the existing financial order, providing reference opinions for industry builders and investors' decision-making. It is recommended that investors closely monitor regulatory trends, participate primarily in fiat-collateralized stablecoins, and avoid the compliance risks associated with algorithmic stablecoins. Traditional financial institutions should adapt to the trend of asset tokenization and explore more opportunities, while crypto institutions should continually advance their compliance progress.

1.1 Definition and Classification of Stablecoins

The price volatility of traditional cryptocurrencies dominated by BTC is too high, which is detrimental to the promotion and application of cryptocurrencies. Stablecoins emerged in 2014 to address this issue. A stablecoin is a type of cryptocurrency designed to maintain price stability.

Stablecoins are typically pegged to assets such as fiat currencies, commodities, or other cryptocurrencies, or use algorithmic adjustment mechanisms to achieve value anchoring. They are widely used in the financial sector as a core medium for digital asset trading, DeFi applications, and cross-border payments.

Stablecoins can be classified into three types based on price stability.

• Fiat Collateralized Stablecoin Fiat-collateralized stablecoins are the most common type of stablecoins, accounting for 92.4% of the market share. They achieve price stability by pegging tokens to fiat currencies like the US dollar. Issuing organizations collateralize fiat currency or highly liquid assets (such as government bonds) in a bank or custodial account, and then mint tokens and issue them at a 1:1 ratio. For example: USDT, USDC.

• Cryptocurrency Asset Collateralized Stablecoin Unlike fiat-collateralized stablecoins, crypto-asset-collateralized stablecoins are backed by cryptocurrencies. Due to the high volatility of cryptocurrencies, they often adopt an over-collateralization approach (with collateral ratios usually around 150%) and introduce on-chain liquidation mechanisms to maintain the value of the stablecoin. For example, DAI issued by MakerDAO (Sky) allows users to mint DAI tokens by over-collateralizing ETH.

• Algorithmic Stablecoin This type of stablecoin does not rely on physical asset backing but instead uses algorithms and market supply and demand to maintain the token price. When the token price is above $1, the system increases the token supply to lower the price; when the price is below $1, the system buys back and destroys tokens to raise the price. For example: UST (which has collapsed), in 2025, USTC has become an independent cryptocurrency, no longer pegged to the US dollar.

Comparison Chart of Three Types of Stablecoins

1.2 Characteristics of Stablecoins

The special value anchoring mechanism of stablecoins distinguishes them from the extreme volatility of traditional cryptocurrencies, and therefore they are widely regarded as "digital cash" or "bridge assets" in the crypto asset ecosystem. The main characteristics are as follows:

• Price Stability By being pegged to stable assets like the US dollar and gold, or by using over-collateralization and algorithmic adjustment mechanisms, stablecoins achieve lower price volatility, possessing stronger store of value and medium of exchange properties.
• Bridging Traditional Finance and Decentralized Finance (DeFi) Stablecoins are issued on the blockchain with traditional finance as the underlying asset, enabling interaction with on-chain protocols and tools, especially playing a crucial role in core applications such as DeFi lending, liquidity mining, and derivatives trading.
• Lower payment costs and higher efficiency Relying on blockchain technology, stablecoins can achieve nearly real-time cross-border transfers, with fees far lower than traditional banking systems and no geographical or time restrictions, significantly improving the efficiency of fund circulation.
• Inflation Resistance and Capital Hedging Most stablecoins are pegged to USD assets, which means they have the same inflation as the dollar. In countries with severe inflation or currency devaluation (such as Argentina, Turkey, etc.), stablecoins have become an important means for residents to hedge against risk and preserve asset value due to their stability. In certain regions of Africa and Latin America, stablecoins have become a tool for people's daily payments.

1.3 Main Application Scenarios

Based on the characteristics of the stablecoin mentioned above, stablecoins are currently applied in various scenarios such as decentralized finance, cryptocurrency trading, cross-border trade, daily payments, and capital hedging. Among them, cross-border trade is the key focus area of legislation in the United States and Hong Kong. Trading through stablecoins not only effectively avoids the issue of currency inflation in certain countries, but the payment costs and efficiency are also far superior to the traditional SWIFT system.

Legislative Background

2.1 The Rise of Stablecoins

Currently, the global stablecoin market capitalization has reached $260.728 billion, surpassing the market value of MasterCard, accounting for about 1% of the nominal GDP of the United States in 2024, making it an important component of the international financial system that cannot be ignored. The penetration rate of stablecoins is continuously rising globally, and as of now, the number of users holding stablecoins has exceeded 170 million, representing about 2% of the total global population, widely distributed across more than 80 countries and regions.

2.2 The motivation for government intervention and regulation

Governments around the world are actively intervening in stablecoin regulation, driven not only by the need to prevent financial risks but also concerning core interests such as monetary sovereignty, financial security, and cross-border capital control, as well as alleviating fiat currency credit risks.

• Prevent systemic financial risks: Avoid losing control of stablecoins that could trigger turmoil in the payment system and capital markets, and prevent the spillover of risks similar to the 2008 shadow banking crisis.
• Maintain currency sovereignty and financial order: Prevent private stablecoins from replacing fiat currency in domestic circulation, weakening the central bank's control over monetary policy and payment systems.
• Combating illegal cross-border capital flows: Stablecoins can bypass regulatory systems like SWIFT, and governments are concerned about their potential abuse in areas such as money laundering, tax evasion, and sanctions evasion.
• Hedge against the impact of "dollar stablecoin hegemony": The United States promotes USDT/USDC to become "on-chain dollars", while other countries explore the legislative response of local currency stablecoins (HKD, EUR, RMB).
• Mitigating fiat credit risk, supporting government bonds: In 2025, the market value of USD stablecoins has exceeded $260 billion, with U.S. government bonds generally accounting for more than 60%-80% of the reserve assets. The demand for stablecoin reserves has become an important buyer of U.S. Treasuries, providing continuous support for the credit of the U.S. dollar.

In order to strengthen the international status of its currency, protect consumer asset security, seize the discourse power in the field of digital assets, and address the lack of regulation of stablecoins, the US, Hong Kong, Europe, and others have successively introduced systematic regulatory regulations, marking the formal entry of the stablecoin industry into an era of strong regulation and compliance.

Progress on Stablecoin Regulation in Major Global Economies

Since 2022, with the expansion of stablecoins in the global market, various countries have successively issued relevant regulations for supervision.

3.1 The United States introduced the "Genius Act" and the "Clarity Act".

The famous Genius Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) was passed by the Senate on June 17, 2025, and by the House of Representatives on July 17, 2025, with a vote of 308–122. President Trump signed it into law on July 18, 2025. This marks the first time the United States has established a unified regulatory framework for the issuance of stablecoins at the federal level. Its core contents include:

• Regulatory model: A dual-track system of federal and state, unified licensing and authorization by the Office of the Comptroller of the Currency (OCC).
• Issuing entities: limited to banks, deposit institutions, and approved specific non-bank financial institutions.
• Reserve Requirements: A 1:1 fiat reserve is required, and the reserve assets must be U.S. Treasury bonds or cash to ensure the stability of the stablecoin's redemption capability.
• Transparency Obligations: Issuers are required to undergo monthly audits, information disclosure, and anti-money laundering reviews.
• Business Restrictions: Issuers are prohibited from providing interest on stored value or engaging in financial activities such as leverage and securitization, to curb the accumulation of systemic risk.
• Cross-border restrictions: Prohibit unapproved foreign stablecoins from circulating in the U.S. market and strengthen the firewall of the capital market.

On the same day, the Clarity Act (Digital Asset Market Clarity Act) was passed by the House of Representatives and sent to the Senate for review. The main purpose is to clarify the regulatory responsibilities of the SEC and CFTC in the digital asset market, covering trading platforms, crypto derivatives, DeFi, and more.

3.2 Hong Kong Launches "Stablecoin Regulations"

The Hong Kong Legislative Council passed the "Stablecoin Ordinance" on May 21, 2025, which will officially come into effect on August 1, 2025. The main content includes:

• Licensing System: All activities related to the issuance, sale, and marketing of stablecoins must obtain permission from the Hong Kong Monetary Authority (HKMA).
• Scope of application: Focus on stablecoins pegged to fiat currencies, excluding products pegged to purely crypto assets.
• Capital requirement: The minimum capital requirement is HKD 25 million, and there must be effective risk management and internal control mechanisms in place.
• Reserve Requirement: 100% of physical or equivalent liquid asset reserves, subject to regular audits and disclosures.
• Anti-money laundering and consumer protection: Strictly comply with AML/CFT regulations and investor suitability requirements.
• Violation Liability: Conducting related business without permission will constitute criminal liability, with a maximum penalty of imprisonment and fines.

The compliance requirements for stablecoins in Hong Kong and the United States are significantly different:

3.3 Other Economic Entity Dynamics

Apart from the United States and Hong Kong, other major economies are also actively advancing regulatory frameworks related to stablecoins, showing an overall trend of prudence and gradual formation.

Overall, the regulatory scope of various countries focuses mainly on collateralized stablecoins, excluding riskier algorithmic stablecoins, which will further restrict the development of algorithmic stablecoins. Additionally, Hong Kong only recognizes fiat-collateralized stablecoins and does not acknowledge the issuance and circulation of crypto-asset collateralized stablecoins, which will further consolidate the dominant position of fiat-collateralized stablecoins.

Countries have differing regulatory attitudes and progress regarding stablecoins, but generally build frameworks around core principles such as "reserve transparency, anti-money laundering review, consumer protection, and financial stability," gradually aligning with their own digital asset or financial system regulations.

Reshaping Financial Order Under the Dominance of Stablecoins

4.1 The Financial Sovereignty Competition Behind Stablecoins

In the current stablecoin market, the market capitalization of dollar-pegged stablecoins accounts for over 90%, with products like USDT and USDC having established themselves as de facto standards in global exchanges, DeFi, and cross-border payments. This situation not only continues the dollar's position in traditional finance but also allows stablecoins to deeply penetrate the influence of the dollar into the new ecosystem of digital finance. U.S. legislation such as the "Genius Act" clearly stipulates that dollar stablecoins must be backed by high-quality assets such as U.S. Treasury bonds and short-term notes, strengthening the binding relationship between stablecoins and core dollar assets (Treasuries). This mechanism has formed a "dual peg structure" of "stablecoin - U.S. Treasury bonds," where stablecoin issuers hold large amounts of U.S. debt, indirectly providing continuous buying pressure for the U.S. Treasury, further solidifying the dollar's dominant position in the global financial system. This mechanism has created an "implicit buying relationship" between stablecoins and dollar assets, solidifying the foundation of U.S. financial hegemony on a global scale.

The widespread circulation of dollar stablecoins globally has created a trend of "on-chain dollarization" in many emerging markets and high-inflation countries, eroding the usage scenarios of local currencies and financial sovereignty. For example, in Argentina, Turkey, and Russia, USDT has become the default tool for residents to preserve asset value and conduct cross-border payments. This phenomenon is viewed in the literature as the digital penetration of the dollar into financially vulnerable countries through stablecoins, undermining the monetary policy independence of these nations.

At the same time, the progress of fiat stablecoins such as the Euro and Hong Kong Dollar in compliance reflects the efforts of various countries to hedge against the spillover effects of US Dollar stablecoins through measures such as the digitization of local currencies and stablecoin legislation. A new round of monetary competition in the digital age has begun, with the struggle for financial hegemony shifting from traditional systems to on-chain ecosystems.

4.2 Competition of Next-Generation Financial Infrastructure

Stablecoins carry not only payment and transaction functions but are gradually becoming a core component of the new generation of cross-border payment and settlement infrastructure. Compared to the traditional SWIFT system, stablecoins have advantages such as real-time settlement, low cost, and decentralization. The United States hopes to replicate the infrastructure hegemony of SWIFT in the on-chain financial world through the US dollar stablecoin, incorporating global payment, settlement, and custody services into its regulatory framework. Meanwhile, international financial centers like Hong Kong and Singapore are promoting the deep integration of local financial infrastructure with fiat stablecoins through policy guidance, aiming to seize the status of cross-border digital financial hubs and nodes.

4.3 Competition for Pricing Power of Digital Assets

In the current digital asset market, stablecoins are not only a medium of exchange but also deeply participate in the reshaping of pricing power in the digital asset market. USDT and USDC almost monopolize the main trading pairs in the crypto market, becoming the de facto standard for on-chain asset liquidity anchoring and pricing at this stage. Changes in their supply directly affect the overall market risk appetite and volatility levels.

The United States has reinforced its control over the pricing power and liquidity dominance of the digital asset market through stablecoin legislation and regulation, indirectly solidifying the core position of the US dollar in the global capital market. Meanwhile, regions like Hong Kong and the European Union are promoting local currency stablecoins in hopes of securing more regional pricing power and influence in future digital financial competition.

Risks and Challenges

The risks of stablecoins come from systemic risks brought about by their own price anchoring mechanism on one hand, and compliance risks brought about by external regulation on the other.

5.1 Preventing Systemic Risks

The core of stablecoins achieving price stability lies in the value stability of the underlying assets. Therefore, the greatest systemic risk of stablecoins comes from the price volatility of their corresponding collateral, which can lead to the stablecoin's price decoupling.

Looking back at the first stablecoin BitUSD, which was launched in 2014 and lost its peg to the dollar at a 1:1 ratio in 2018, this was due to its collateral being an obscure, highly volatile asset that had no backing of its own - BitShares.

In the same year, MakerDAO issued DAI, which uses an over-collateralization mechanism and a liquidation mechanism to combat the risks brought by the high volatility of crypto assets. However, it essentially does not improve capital efficiency and exposes the stablecoin to the price volatility risks of the collateral assets. Similarly, using fiat assets as collateral for stablecoins does not guarantee absolute safety.

In March 2023, due to the collapse of three American banks (Silicon Valley Bank (SVB), Signature Bank, and SilverGate Bank), both USDC and DAI experienced a depegging. According to Circle, the issuer of USDC, the $3.3 billion cash reserve used to back the stablecoin was held in SVB. This led to a single-day drop of over 12% for USDC.

The value of DAI has also experienced fluctuations, primarily because at that time more than half of its collateral reserves were linked to USDC and its related instruments. The situation stabilized only after the Federal Reserve announced support for bank creditors, and USDC and DAI returned to their respective peg levels. Afterwards, both stablecoins adjusted their reserve structures, with USDC mainly storing its cash reserves at the Bank of New York Mellon, while DAI diversified its reserves into various stablecoins and increased its holdings in real-world assets (RWA).

This series of de-pegging events reminds stablecoin issuers to diversify their asset allocation to combat systemic risks.

5.2 Violation of the decentralized concept

Although stablecoins once drove the widespread use and compliance access of cryptocurrencies, their mainstream models (such as USDT and USDC) rely on centralized entities for operation and fiat asset backing, which goes against the core principles of blockchain's native decentralization and censorship resistance.

Some scholars believe that fiat-collateralized stablecoins are essentially on-chain mirrors of fiat currencies like the US dollar, which fundamentally reinforces dependence on the traditional financial system (the dollar, banking system), creating a "centralized core under a decentralized facade," thereby weakening the original ideal of decentralization in cryptocurrencies.

This centralized reliance not only limits stablecoins to the credit risks of the issuers and custodians but may also lead to freezing or tampering in extreme cases (compliance policies, censorship pressures), violating the original intention of blockchain's "permissionless and immutable" nature.

5.3 Difficulties in cross-border regulatory coordination

Globally, stablecoins involve multiple jurisdictions, cross-border finance, and data flow, but there are significant differences in the regulatory positions, definitions, and compliance requirements for stablecoins across countries:

Due to significant differences in regulatory frameworks across countries, stablecoins face considerable uncertainty and legal risks in cross-border usage, settlement, and compliance processes, which can easily lead to "regulatory arbitrage" and "compliance gaps," hindering their global development process.

Potential Financial Sanction Risks 5.4

With the turbulence of international situations, stablecoins also face the risk of being included in the financial sanction toolchain. The United States, through regulatory-led US dollar stablecoins, may leverage their global on-chain payment and settlement attributes to strengthen scrutiny over capital flows and the use of funds, and even implement sanctions such as freezing and blocking against specific entities and countries.

Alexander Baker pointed out that stablecoins have, to some extent, become an "on-chain extension of the dollar" and may become part of the U.S. weaponization of finance in the future, similar to traditional systems like SWIFT. This undoubtedly increases the political and compliance risk exposure for some emerging markets, cross-border transactions, and on-chain financial projects, driving a global exploration of de-dollarization and regional fiat-pegged stablecoins.

Conclusion

The rise of stablecoins is a microcosm of the reshaping of monetary order in the digital financial era. Since their inception, stablecoins have continuously infiltrated multiple fields such as payments, trading, and asset reserves, and with their efficiency, low cost, and programmability, they have gradually become an important bridge linking traditional finance and the digital economy. Today, stablecoins are not only the core infrastructure of the crypto market but also profoundly influence the evolution of the global financial landscape, and are increasingly being incorporated into the financial regulatory and monetary strategy frameworks of many countries.

Behind the rise of stablecoins is the covert competition between monetary sovereignty and financial hegemony. The dominance of the US dollar stablecoin in the global market further consolidates the dollar's ruling position in the blockchain world, and its reserve structure, which is deeply tied to US Treasury bonds, makes stablecoins an important extension tool of US financial strategy. Emerging markets and other major economies are attempting to gradually weaken the penetration of dollar stablecoins through the establishment of local currency stablecoins, digital currency regulations, and cross-border payment systems, promoting global currency diversification and local currency digitalization. Stablecoin legislation has become a key variable in the reshaping of the future international financial order, reflecting a deeper redistribution of national interests and financial power.

However, the future development of stablecoins still faces many uncertainties. First, there are systemic risks inherent in the anchoring mechanism and reserve structure, which are difficult to completely eliminate in the short term, and there are still potential trust crises and market volatility risks. Second, a unified global regulatory framework has not yet been established, and there are many obstacles to cross-border regulatory coordination and legal applicability, leaving stablecoins in a gray area, facing ongoing compliance and policy risks. Third, issues such as centralized issuance and financial weaponization create inherent tension between stablecoins and the original ideals of blockchain decentralization and censorship resistance. In the future, how to balance regulatory compliance and technological autonomy remains a core issue that the industry must face.

In the future, stablecoins will play an increasingly important role in financial infrastructure, currency competition, and the international settlement system. Their development path is not only related to the deep integration of decentralized finance and real-world assets but also to the construction of a new global financial order and the redistribution of discourse power.
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