MiCA, GENIUS, STABLE: The new rules shaping stablecoin payments - Trade Treasury Payments

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MiCA, GENIUS, STABLE: The new rules shaping stablecoin payments

Stablecoins are the problem that the Distributed Ledger Technology solution has been looking for. They are cryptocurrencies without the inherent volatility. This means that they benefit from the genius of DLT-enabled payment systems (speedy settlement, transparency of transactions, and decentralized operations), but don’t suffer from the major drawbacks that can so easily detract from the appeal and usability of other cryptocurrencies.

Stablecoins are designed to maintain a stable value by being pegged either to a fiat currency like the US dollar, or to a high quality real world asset like gold (Some are also back by other cryptocurrencies, but this obviously means that, whilst all Stablecoins are stable, some are more stable than others). 

Increasingly, Stablecoins are used for saving, investing and making cross-border payments. Without the wild value fluctuations that are associated with traditional cryptocurrencies, they are a means of both increasing user confidence and reducing friction in transactions:  in so doing, they have the potential to transform the payments industry.

Perhaps the most significant feature of Stablecoins is the fact that they can facilitate atomic settlement:  settlement that is conditional on delivery and payment both occurring at the same time. Whilst delivery versus payment (or DvP) arrangements are hardly new, DLT systems allow for the DvP method to extend across multiple linked transactions – essentially by making the settlement of each transaction leg conditional upon the settlement of all the others. DLT also allows for instant settlement and, whilst this might not be regarded as an advantage in all contexts, its possibility expands the functionality of future payment systems. This can only be a good thing.  

The power and the reach of the Stablecoin has, somewhat unsurprisingly, not gone unnoticed by governments and by national banks. Stablecoin regulation is the topic du jour across the globe, as jurisdictions try to figure out how best to balance the promise of this innovation with consumer protection and with anti-money Laundering and counter terrorist financing concerns. It’s undoubtedly a nettle, but one that states need to grasp in order to ensure that Stablecoins fulfil their promise of being a seismic event in the world of payments. 

So far, the most advanced large-scale regime is probably that of the Markets in Crypto-Assets Regulation (MiCA) – the regulatory framework of the European Union, which came into force at the end of 2024. Not only is this the most advanced in terms of its articulation and implementation, but it is also one of the most comprehensive frameworks when compared with other regimes, both those proposed and those already published. This is because it applies to a very broad range of crypto-assets, expressly including securities and e-money, and to crypto-asset service providers (CASPs) who operate in Europe, regardless of where they are based or registered. 

MiCA requires Stablecoin issuers to acquire regulatory approval and to maintain a sufficiently liquid reserve at a 1:1 ratio, with part of that reserve held in deposits. It will be enforced by the European Securities and Markets Authority (ESMA) and The European Banking Authority (EBA).

In the US, there are currently two proposed means of dealing with Stablecoins, both narrower in their remit than MiCA since they apply specifically to Stablecoins, as opposed to crypto-assets more generally. The Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act is a bipartisan attempt to create a comprehensive regulatory framework. It, too, aims to require Stablecoin issuers to maintain reserves backing their Stablecoins on at least a 1:1 basis with the US Dollar or other high quality (approved) assets. It also proposes to require issuers to segregate reserves, to obtain monthly certification, and prohibits rehypothecation of client funds (meaning that client collateral cannot be repurposed to secure the issuer’s own borrowing).

The Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act, advanced in the House Financial Services Committee, also proposes that a 1:1 reserve ratio of high quality assets be required, as well as a federal licence and regular audits. It also aims to ensure that Stablecoins are redeemable swiftly and at their face value. Both bills are similar in many respects, although the STABLE Act is more accommodating of foreign issuers and would permit domestic issuers to remain under state (as opposed to federal) regulation regardless of their size. For both, the principal regulatory authorities concerned will be the Federal Reserve, OCC, SEC, CFTC and FinCEN.  Neither of these pieces of legislation have yet been enacted.

Closer to home, the Financial Conduct Authority (FCA) and the Bank of England (BofE) have published proposals (on which they have been consulting since March 2025) outlining the regulation of fiat-backed Stablecoins.  In line with MiCA, STABLE and GENIUS, these proposals deal with the authorisation of issuers and with their reserve, liquidity, and AML and CTF requirements. 

As with the other regimes, the current thinking is that issuers will need fully to back their Stablecoins with central bank deposits at a 1:1 ratio and that interest payments on Stablecoins are likely to be prohibited.  The UK proposals aim to bring Stablecoins within the existing general financial services regulatory framework (under the Financial Services and Markets Act 2000 (FSMA) rather than, as MiCA does, set up a bespoke and native legal framework for crypto-assets.

These are not the only schemes out there, but they are probably the broadest in effect.  It is too early to say which is the better approach, or even whether the distinctions between them will make any difference in practice. What is both notable and reassuring, however, is that there are several common themes:  regulator authorisation, minimum reserves, prohibition of interest payments and subjection to AML and CTF measures.  However they evolve, it is crucial that legal and regulatory clarity is achieved as swiftly, and in as coordinated a way, as possible.  Cometh the spending power, cometh the plan.