U.S. Stablecoin Regulations need urgent clarity, according to Federal Reserve’s Christopher Waller, warning that regulatory fragmentation could stifle innovation and erode the dollar’s dominance in digital finance.
Speaking at the “A Very Stable Conference” in San Francisco, Waller, a member of the Federal Reserve Board of Governors, stressed that stablecoins—cryptocurrencies pegged to traditional currencies like the dollar—hold the potential to modernize payments and reinforce the dollar’s global role.
However, their future hinges on the creation of a coherent and predictable regulatory framework.
“The stablecoin market would benefit from a U.S. regulatory and supervisory framework that addresses risks directly, fully, and narrowly,” Waller said, according to his speech published on the Federal Reserve’s website.
Regulatory Patchwork Concerns
Waller’s remarks reflect growing frustration among policymakers and industry players over the absence of comprehensive federal legislation governing stablecoins in the U.S. Currently, a patchwork of state-level regimes—led by jurisdictions like New York—operates alongside federal agencies that oversee broader financial stability.
The result is an inconsistent environment that industry insiders say deters investment and complicates national and cross-border operations.
By contrast, the European Union’s Markets in Crypto-Assets Regulation (MiCA), which begins phasing in this year, offers a unified framework across member states.
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Under MiCA, stablecoin issuers must maintain adequate reserves and can earn interest on those reserves—a feature that contrasts with some U.S. proposals requiring non-interest-bearing central bank deposits for systemic issuers.
This divergence risks pushing U.S. firms to structure their businesses offshore or, as Waller noted, juggle multiple compliance regimes domestically and internationally, reducing efficiency and scalability.
“Operating under different sets of rules across jurisdictions could deter stablecoin issuers from expanding globally,” said Rebecca Rettig, Chief Legal and Policy Officer at Polygon Labs, speaking at a separate industry event in January.
Stakes for the Dollar’s Digital Future
The implications extend beyond regulatory red tape. Waller underscored that dollar-denominated stablecoins—currently representing roughly 99% of the global stablecoin market—could reinforce the U.S. dollar’s dominance in international finance.
Stablecoins have already become indispensable in cryptocurrency trading and are increasingly viewed as a bridge to faster, cheaper cross-border payments, particularly in regions with volatile currencies or underdeveloped banking systems.
However, Waller cautioned that achieving this potential requires a regulatory environment that supports both innovation and consumer protection.
“The U.S. has an opportunity to cement its leadership in digital finance,” said Michael Barr, the Federal Reserve’s Vice Chair for Supervision, in testimony before the Senate Banking Committee in July 2024.
China’s push for its digital yuan, coupled with the rise of euro-backed stablecoins, poses a strategic challenge. While the dollar remains preeminent, prolonged regulatory uncertainty could gradually erode its first-mover advantage in the stablecoin sector.
Balancing Innovation and Risk
Waller’s comments reflect the Fed’s broader struggle to balance innovation with financial stability. Stablecoins function as private money, and their potential to facilitate instant global transactions has won support from fintechs and traditional financial institutions alike.
However, they also carry systemic risks, including the potential for sudden “runs” if holders lose confidence in the reserves backing the digital tokens.
Instances of stablecoins “de-pegging”—when their value strays from the currency they are supposed to mirror—have raised alarms.
The collapse of algorithmic stablecoin TerraUSD in May 2022 wiped out $40 billion in investor funds, prompting calls for tighter oversight from U.S. Treasury Secretary Janet Yellen and other officials.
Waller stressed that while stablecoins are not banks, they warrant tailored regulations to ensure that consumers can redeem their holdings reliably and that the underlying payment systems remain robust.
“A clear set of rules can promote both stability and innovation,” Waller said in his February 12 remarks. “But uncertainty or overregulation could push innovation offshore.”
Industry Calls for Action
The crypto industry largely welcomed Waller’s call for clarity, though some expressed concerns about potential overreach.
“Stablecoins are a critical on-ramp to the digital economy,” said Jeremy Allaire, CEO of Circle, the issuer of USD Coin (USDC), in an interview with CNBC in December 2024. “We need regulations that safeguard consumers without stifling growth.”
Legislative efforts have thus far stalled in Congress. The Stablecoin TRUST Act, proposed by Senator Pat Toomey in 2023, sought to establish a national licensing framework but remains mired in political gridlock.
Read more: Crypto Is Not a Zero-Sum Game, Says Ripple CEO
In the absence of federal action, states like New York and Wyoming have developed their own licensing requirements, creating compliance headaches for companies aiming to operate nationally.
“Businesses need certainty,” said Sheila Warren, CEO of the Crypto Council for Innovation, in an interview with Bloomberg in November 2024. “If I’m issuing a dollar-backed stablecoin, I should be confident that it can be used seamlessly across all 50 states. Right now, that’s not the case.”
Path Forward
Waller’s speech signals growing recognition within the Fed that stablecoins are not a passing trend but a structural development in modern finance. Yet, the path to a unified regulatory approach remains fraught.
Federal authorities will need to navigate complex political dynamics and coordinate with state regulators. Simultaneously, they must engage with international partners to avoid a fragmented global landscape that forces stablecoin issuers into regulatory arbitrage.
Ultimately, Waller’s vision is for stablecoins to thrive—or fade—based on their utility, not regulatory barriers. For that to happen, the U.S. must move swiftly.
“The market will sort out winners and losers,” Waller said. “Our job is to ensure the rules are clear, fair, and promote safety.”
The question is whether Washington can deliver before the digital finance frontier moves on without it.
