Stablecoins: The Cornerstone of the Digital Finance Revolution

Stablecoins, which are typically virtual digital assets (VDA) pegged to stable assets like fiat currencies, are being recognised as the cornerstone of digital finance revolution, delivering a blend of traditional currency stability and decentralised innovation.

As their global adoption accelerates - from everyday retail transactions/ cross-border remittances to institutional treasury operations - governments are realising that clear, forward-thinking regulation can foster innovation and help their economies stay ahead of the pack.

In this FIG paper, we focus on the developments in the regulatory landscapes and use cases of stablecoins globally. Then, focussing on India, discuss how these use cases have been adapted to the existing regulatory framework, and reflect on the opportunities and hurdles for India to compete globally in this space, based on our learnings from both domestic and offshore VDA players.

Global Regulatory Landscape and Market Trends

By December 2024, the market capitalisation of Stablecoins had touched USD 205 billion, competing strongly with mainstream financial products. As a result, governments across the world are rolling out frameworks for stablecoins backed by currencies.

United States of America (USA)

Following the Trump administration’s pro-crypto mandate, the US Congress is debating new stablecoin legislation, i.e., the “Guaranteeing Electronic Neutrality, Innovation, and US Stability” (GENIUS) Act in the Senate and the “Stablecoin Tethering and Bank Licensing Enforcement” (STABLE) Act in the House that mandate 1:1 reserve backing, transparent audits, redemption rights, and compliance with anti-money laundering (AML) requirements.

The US Securities and Exchange Commission (“SEC”) has issued a statement, indicating that stablecoins (backed by low-risk, liquid assets) do not constitute securities, prompting the SEC to drop its longstanding civil lawsuits against exchanges Ripple, Coinbase, and Kraken.

As a result of, large corporations and banks are now backing innovation in stablecoin, by launching use cases for cross-border remittances, B2B payments, collateral in lending protocols, and payment network cards linked to stablecoin wallets.

European Union (EU)

The EU introduced the Markets in Crypto-Assets (“MiCA”) regulation to govern, inter alia, e-money tokens (i.e., fiat-backed stablecoins), asset-referenced tokens (i.e. liquid asset backed stablecoins) and algorithmic crypto-assets (stablecoins that maintain value by deploying an algorithm to increase/ decrease supply based on demand). MiCA aims to unify EU-wide rules, offering a “passport” to issuers who meet these requirements. This clarity has already led major stablecoin issuers, including Circle, Crypto.com, and Societe Generale, to seek authorisation in Europe.

However, the mandate to actively maintain a proportional reserve of assets, subject to EU law (to cover market and currency risks), is causing issuers to reconsider operating in the EU, against more lucrative treasury options denominated in USD.

United Arab Emirates (UAE)

In the UAE, the Abu Dhabi Global Market (ADGM) and Dubai’s Virtual Assets Regulatory Authority (VARA) mandate licensing, prudential requirements, and strong disclosures for stablecoin issuers. Sandboxing programmes help them test offerings in a controlled environment. The UAE’s strategic positioning as a financial hub has driven stablecoin usage in import-export payments and remittances throughout the Middle East and North Africa (MENA) region, including recent plans by the Abu Dhabi sovereign wealth fund ADQ, conglomerate IHC (IHC AD) and the UAE’s biggest lender by assets First Abu Dhabi Bank (FAB) to launch a dirham-backed stablecoin.

Singapore & Japan

The Monetary Authority of Singapore has established a licensing regime for single currency stablecoins (SCS) and prescribed requirements for maintaining asset reserves (such minimum base capital and liquid assets). Interestingly, Singapore is seeing collaboration between stablecoin issuers and major digital payment brands, enabling stablecoin-based “purpose-bound money” for e-commerce and cross-border remittances.

Japanese local banks have explored issuing stablecoins for domestic payments, and stablecoin usage is growing in areas like e-commerce, though adoption remains carefully overseen by the Japanese regulator, i.e., Financial Services Agency.

Stablecoin Use Cases in India – Legal & Regulatory Considerations

In recent years, stablecoins have become increasingly popular among Indian retail and institutional participants as users are seeking lower-risk on-chain exposure and aligns with the core proposition of stablecoins: a token pegged 1:1 to a reference asset (and is accordingly backed to maintain that value). While use cases for facilitating payments are limited on account of VDA not being legal tender in India, three primary use cases have emerged.

1. Portfolio Investment

Unlike most crypto tokens, stablecoins aim to “lock in” their value by holding a reserve of low-volatility assets, such as US Treasury bills or other cash equivalents, to back each token. These features of stability and liquidity capacity drove Indian customers to