6.2 Major Regulatory Frameworks
6.2 Major Regulatory Frameworks
What you'll learn: How the world's major regulatory frameworks actually work, what they require from stablecoin issuers, and what protections or limitations they create for users in different jurisdictions.
Understanding specific regulatory frameworks helps you evaluate which stablecoins to trust and what rights you have as a user. While Section 6.1 mapped the global landscape, this section examines how major jurisdictions actually regulate stablecoins, from the EU's comprehensive MiCA to America's state-by-state patchwork to Asia's varied approaches.
Quick Framework Comparison
EU (MiCA)
27 countries, 450M people
Full reserves, daily redemption, €350K+ capital
Guaranteed redemption, bankruptcy protection
Fully active since June 2024
US (State-level)
50 states, varied rules
Money transmitter licenses, state-specific reserves
Varies by state, no federal standard
Operational, federal law pending
Singapore
National framework
S$250K capital, safeguarding, AML compliance
Limited retail protection, institutional focus
Active since 2020
Japan
National framework
100% reserves, daily redemption, strict custody
Strong protection, limited options
Active since 2023
UK
National framework
Pending finalization
Expected similar to EU
Expected 2025
United States: The Patchwork Problem
The U.S. regulatory approach resembles a 50-piece puzzle where each state contributes different rules while federal agencies debate oversight boundaries. This complexity stems from America's dual banking system, where both federal and state authorities regulate financial services.
State-Level Reality
Currently, stablecoins operate primarily under state money transmission laws:
• Licensing Requirements: Circle holds licenses in 46 states for USDC [1] • Reserve Standards: Each state sets different requirements for backing assets • Reporting Obligations: Vary from monthly in New York to quarterly elsewhere • Consumer Protection: Ranges from comprehensive (New York BitLicense) to minimal (Montana)
Notable State Approaches:
New York: BitLicense adds cryptocurrency-specific obligations beyond money transmission
Wyoming: Special purpose depository institution (SPDI) charter allows Federal Reserve access [2]
Texas: Treats stablecoins as money under existing law
Montana/South Carolina: No money transmitter requirements
Federal Oversight Confusion
Multiple agencies claim different aspects:
Treasury
Money transmission, systemic risk
Studying comprehensive framework
SEC
Potential securities violations
Case-by-case enforcement
CFTC
Commodity derivatives
Limited direct oversight
Federal Reserve
Banking system impacts
Monitoring, no direct regulation
Proposed Federal Framework
The Clarity for Payment Stablecoins Act would establish:
100% backing by cash and short-term Treasuries
Monthly attestations from certified accountants
Prohibition on lending reserves
Federal or state licensing options
Clear bankruptcy protections [3]
Impact for Users: Until federal legislation passes, your protections depend entirely on which state you're in and which states licensed your stablecoin issuer.
European Union: MiCA's Comprehensive Approach
The EU's Markets in Crypto-Assets Regulation (MiCA), fully effective since June 30, 2024, provides the world's most comprehensive stablecoin framework. Unlike the U.S. patchwork, MiCA creates uniform rules across all 27 member states [4].
Issuer Requirements
MiCA classifies stablecoins as "electronic money tokens" (EMTs) with strict obligations:
Reserve Management:
Full backing by safe, liquid assets
Held in EU credit institutions only
Segregated from issuer's own funds
Investment limited to low-risk assets
Operational Standards:
Minimum capital: €350,000 + 2% of tokens in circulation
Mandatory redemption at par within one business day
Regular audits by approved firms
Detailed white papers before issuance
Prohibited Activities:
Cannot pay interest to holders
Cannot lend out reserves
Cannot commingle customer and operational funds
User Protections Under MiCA
EU users enjoy unprecedented safeguards:
Redemption Rights
Convert to euros at face value within 24 hours
Bankruptcy Protection
Reserves protected even if issuer fails
Dispute Resolution
Clear procedures and regulatory oversight
Compensation Schemes
Coverage if issuer cannot honor redemptions
Transparency
Monthly reserve reports and audit results
Market Impact: These protections come with trade-offs. Binance delisted non-compliant stablecoins. Tether announced USDT phase-out by June 2025 unless authorized [5].
Asia-Pacific: Divergent Paths
Asian countries demonstrate how different priorities create different frameworks.
Singapore: The Balanced Model
Singapore's Payment Services Act strikes a middle ground [6]:
Requirements:
Minimum capital: S$250,000
Customer asset safeguarding
AML/CFT compliance
Adequate liquidity maintenance
Regulatory Sandbox: Allows testing innovative approaches with relaxed requirements for:
Limited customer base (max 1,000)
Transaction caps (S$5M total)
Time-bound experiments (24 months)
Result: Attracted Paxos, Circle, and other major issuers while maintaining stability.
Japan: Post-Terra Strictness
Following Terra's collapse, Japan implemented stringent rules [7]:
Stablecoin Categories:
Bank-issued: Only licensed banks can issue
Trust company-issued: Requires trust banking license
Foreign stablecoins: Need local intermediary license
Universal Requirements:
100% reserve backing (deposits or government bonds only)
Daily redemption guarantees
Segregated custody with qualified custodians
Monthly third-party audits
Real-time reserve reporting
Market Effect: Only three stablecoins currently meet standards, limiting user choice but maximizing protection.
Hong Kong: The Sandbox Approach
Hong Kong tests regulations through controlled experiments [8]:
Sandbox Parameters:
Selected issuers operate under close supervision
Gradual relaxation of requirements based on performance
Public-private collaboration on framework development
Expected full framework by 2025
South Korea: Learning from Terra
After Terra (a Korean project) collapsed, authorities implemented [9]:
Virtual Asset User Protection Act:
Segregated custody mandatory
Insurance against hacking losses
Real-name verified accounts only
Cold wallet storage requirements (80% minimum)
Regular security audits
Emerging Markets: Pragmatic Approaches
Developing nations balance innovation needs with stability concerns.
Brazil: Progressive Integration
Brazil's framework emphasizes integration with existing systems [10]:
Requirements:
Segregated customer funds
Daily liquidity reporting
Operational resilience standards
Must integrate with PIX instant payment system
Local entity requirement for foreign issuers
Innovation: First major economy to require traditional payment system integration.
Nigeria: From Ban to Framework
Nigeria's regulatory journey shows pragmatic evolution [11]:
2021: Complete ban on crypto banking 2023: Reversal and framework development 2024: Licensing requirements established:
Minimum capital: ₦2 billion ($2.5 million)
Technical competence assessments
Detailed business plans required
Two-tier system (retail vs. institutional)
India: The Cautious Dance
India maintains strategic ambiguity [12]:
Current Status:
30% flat tax on crypto gains
1% TDS on transactions above ₹10,000
No specific stablecoin framework
Payment use technically prohibited
Trading remains legal
Pending Decisions: Reserve Bank exploring official digital rupee while evaluating stablecoin policy.
Regulatory Sandboxes: Testing Grounds
Several jurisdictions use sandboxes to test stablecoin regulations:
Singapore
24-month testing, relaxed requirements
Paxos stablecoin development
UK
Case-by-case approval, FCA oversight
Multiple stablecoin pilots
Hong Kong
Comprehensive testing program
HKDG stablecoin trials
UAE (Dubai)
VARA framework, controlled testing
Regional payment experiments
Thailand
Bank of Thailand oversight
Retail CBDC integration tests
What These Frameworks Mean for Users
The practical impact varies dramatically:
In Highly Regulated Markets (EU, Japan)
Pros: Strong protections, clear rights, predictable operations Cons: Limited options, higher costs, slower innovation
In Partially Regulated Markets (US, UK)
Pros: More options, competitive pricing, ongoing innovation Cons: Uncertain protections, complex compliance, variable rights
In Permissive Markets (Singapore, Switzerland)
Pros: Innovation-friendly, institutional-grade services, clear rules Cons: Limited retail focus, higher barriers to entry
In Developing Markets (Brazil, Nigeria, India)
Pros: Pragmatic solutions, local integration, growing access Cons: Evolving rules, enforcement uncertainty, limited protections
Understanding your jurisdiction's framework helps set realistic expectations. EU users shouldn't expect the variety available to Americans. U.S. users shouldn't assume EU-level protections. Emerging market users should prepare for regulatory changes. Knowledge of these frameworks turns regulatory complexity from confusion into informed choice.
Key Takeaways:
The U.S. relies on state licenses while debating federal standards, creating a complex patchwork
EU's MiCA provides the strongest user protections globally but limits available options
Asian approaches range from Singapore's balanced innovation to Japan's strict post-Terra standards
Emerging markets increasingly develop pragmatic frameworks balancing access with stability
Regulatory sandboxes allow controlled experimentation before full implementation
References
[1] Circle U.S. Regulatory Licenses - https://www.circle.com/legal/licenses
[2] Special Purpose Depository Institutions - https://wyomingbankingdivision.wyo.gov/banks-and-trust-companies/special-purpose-depository-institutions
[3] Clarity for Payment Stablecoins Act of 2023 (H.R. 4766) — Committee Report - https://www.govinfo.gov/content/pkg/CRPT-118hrpt492/pdf/CRPT-118hrpt492.pdf
[4] Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA) - https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023R1114
[5] MiCA timetable: stablecoin titles apply from 30 June 2024 - https://www.amf-france.org/en/news-publications/news/markets-crypto-assets-publication-mica-regulation
[6] MAS Finalises Stablecoin Regulatory Framework - https://www.mas.gov.sg/news/media-releases/2023/mas-finalises-stablecoin-regulatory-framework
[7] Regulatory Framework for Crypto-assets and Stablecoins - https://www.fsa.go.jp/inter/etc/20220914-2/02.pdf
[8] HKMA announces stablecoin issuer sandbox participants - https://www.hkma.gov.hk/eng/news-and-media/press-releases/2024/07/20240718-4/
[9] Detailed rules for the Act on the Protection of Virtual Asset Users (cold wallet 80% requirement) - https://www.fsc.go.kr/eng/pr010101/81698
[10] Pix – Brazil’s instant payments system - https://www.bcb.gov.br/en/financialstability/pix_en
[11] Guidelines on the Operation of Bank Accounts for Virtual Asset Service Providers (Dec 22, 2023) - https://www.cbn.gov.ng/out/2024/fprd/guidelines%20on%20operations%20of%20bank%20accounts%20for%20virtual%20asset%20providers.pdf
[12] Digital Rupee (e₹) – FAQs - https://www.rbi.org.in/commonman/English/scripts/FAQs.aspx?Id=3686
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