Stablecoins are regulated as money-like tokens with par redemption and reserve duties, distinct from volatile cryptoassets; that split now shapes licences, use cases and how on-chain settlement reaches mainstream payments.
Most people say “crypto” and mean everything that moves on a blockchain. Linguistically convenient; analytically disastrous.
A decade and a half after the Bitcoin white paper set the tone, UK policymakers quietly chose a different label – “cryptoassets” – precisely to avoid implying these instruments behave like money.
That 2018 choice by the UK Cryptoassets Taskforce (HM Treasury, FCA and Bank of England), I think, is still the clearest way to think about the market.
Stablecoins are designed to hold par value against a reference (usually a fiat currency) and to be redeemable on demand. Global standard-setters treat them as money-like arrangements with explicit obligations on reserves, redemption and disclosures.
Most other cryptoassets (Bitcoin, Ether, utility and governance tokens) are volatile by design, speculative in practice and – in policy terms – not money. That is why UK guidance talks about “cryptoassets”, distinguishing exchange/utility/security tokens from money-like instruments.
If you remember one line for house style, make it this: call the broad category ‘cryptoassets’; call the money-like subset ‘stablecoins’.
What a stablecoin is (and isn’t)
There are three useful buckets:
- Fiat-backed single-currency coins: the promise is 1:1 par redemption against a single official currency, backed by high-quality reserves. Examples: USDC (Circle), PYUSD (PayPal, issued by Paxos), and euro coins like EURC (Circle) and EURAU (AllUnity).
- Asset-referenced or basket-backed coins: the EU puts these into its “ART” bucket under MiCA. They stabilise value by reference to one or more assets/currencies and face caps and disclosures to manage monetary/financial-stability risk.
- Algorithmic designs: policy consensus is blunt – if you rely on reflexive algorithms and not fully backed reserves, you don’t meet “effective stabilisation” expectations. The FSB says so; MiCA effectively excludes them from the stablecoin perimeter.
Brands on the ground (and what they really are)
In today’s market, USDT (Tether) remains the workhorse most traders sit in between positions, reflecting its outsized circulation rather than any UK or EU e-money authorisation; the takeaway for payments teams is dominance, not regulatory passport.
By contrast, USDC (Circle) has staked its brand on transparency (regular reserve attestations) and, crucially, now issues in the EU under a French electronic-money licence to meet MiCA obligations for USDC and EURC. Circle PYUSD (PayPal, issued by Paxos) is a dollar-redeemable coin supervised in New York, with PayPal signalling network expansion — for example to Stellar — pending NYDFS approval.
On the euro side, EURAU (AllUnity) launched in summer 2025 as a BaFin-regulated stablecoin, positioning itself as a flagship, MiCA-aligned instrument for European institutions.
It’s also worth drawing a bright line between tokenised bank money and public stablecoins. JPM Coin and other deposit tokens are tokenised claims on commercial-bank deposits running on permissioned rails for institutional clients (governed by banking law rather than public stablecoin regimes) and are increasingly used for treasury and on-chain settlement.
Finally, this all connects to real payments plumbing: Visa has expanded on-chain settlement to support additional USD stablecoins, more blockchains, and the euro-denominated EURC, illustrating how stablecoins are being wired into mainstream issuer–acquirer settlement.
Why regulators draw a hard line
What drives the split is the promise. Stablecoins make money-like claims (par redemption, high-quality reserves, orderly wind-down) so supervisors impose money-like duties.
- New York (NYDFS): three pillars for dollar-backed stablecoins — redeemability, reserves and independent attestations. If you issue under NYDFS, you live by these.
- FSB global baseline: jurisdictions should ensure robust stabilisation, governance and disclosures for stablecoins, with “algorithmic” designs failing those tests.
The regulatory map (2025 snapshot)
Across the European Union, the picture is now clear. Since 30 June 2024, the first part of MiCA has applied to stablecoins, bringing issuers of asset-referenced tokens and e-money tokens into a full authorisation regime with par-value redemption and robust reserve requirements; regulators have also been explicit that paying interest to holders is not allowed, underscoring that these instruments are meant for payments rather than yield.
The UK is moving on a parallel but still-to-be-implemented track. The FCA’s CP25/14 consulted on rules for issuing qualifying stablecoins and safeguarding cryptoassets through the summer of 2025, while the Bank of England continues to shape a sister regime for systemic payment systems that use stablecoins, including the possibility of limits during a transition to manage financial-stability risks.
The UK Treasury’s latest policy note, meanwhile, signals that although stablecoins can be used in payments today, they will remain outside the UK payments perimeter until ministers “switch it on” via secondary legislation.
In the US, the federal landscape changed decisively this summer. The GENIUS Act established the first nationwide framework for payment stablecoins, setting reserve and disclosure expectations and, notably, strengthening bankruptcy protections for token holders; the result is a clearer path for banks and large corporations to consider issuance, even as agencies work through implementation.
Singapore has already finalised a single-currency stablecoin regime for SGD or G10-pegged coins, built around redemption at par, high-quality reserves and regular disclosures; it remains one of the cleanest templates for issuers and intermediaries to follow.
Hong Kong’s new regime is now live as well: from 1 August 2025, any issuance of fiat-referenced stablecoins requires a licence from the HKMA, with application guidance published alongside the ordinance.
Japan went early on definitions and gatekeeping. Amendments to the Payment Services Act that took effect on 1 June 2023 classify stablecoins as “Electronic Payment Instruments”, limit issuance to supervised institutions such as banks, trust banks and registered fund-transfer firms, and create a licensing framework for intermediaries. The direction of travel is clear: payment-grade tokens should look and behave like regulated money claims.
In the UAE’s Abu Dhabi Global Market, the FSRA has carved out a dedicated framework for fiat-referenced tokens that looks and feels like a bank-money regime: par redemption, tight reserve rules and white-paper obligations for issuers. The authority has also drawn a bright line by explicitly prohibiting algorithmic stablecoins within ADGM, keeping the perimeter focused on tokens backed by cash and high-quality liquid assets.
Taken together, these regimes are converging on the same idea that when a token makes money-like promises, it invites money-like supervision. The labels differ, but the policy spine is consistent.
Payments, not punts: where this bites in practice
The most tangible impact is in the back office rather than at the till. Treasurers are learning that a redeemable, fiat-backed token can move value across regions at any hour, including when card and banking schemes are shut, and still land as settled funds the next business morning.
Visa’s own experiments make the point: it has expanded its settlement platform beyond USDC to include additional dollar-backed coins, more blockchains and, crucially for Europe, the euro-denominated EURC. That is not a consumer play; it shows how stablecoins are being wired into mainstream settlement rather than pitched as retail brands.
Cross-border pay-outs are following the same path. Marketplaces, platforms and certain merchant categories are testing stablecoins to compress cut-off times and correspondent hops, then converting back to bank money where needed.
The Bank for International Settlements has noted these growing linkages with traditional finance – a signal that, whatever one thinks of the label “crypto,” fiat-referenced tokens are already interacting with the regulated economy.
With that in mind, compliance decides what is feasible. Whether a PSP can support a given coin depends first on the issuer’s legal status in the relevant market (an e-money token in the EU, a qualifying stablecoin in the UK when switched on, a permitted “payment stablecoin” in the US), then on the coin’s design (reserve-backed versus algorithmic), and finally on the use case (retail payments, treasury settlement, or trading collateral).
Supervisors have sketched the risk-based perimeter accordingly: par redemption, high-quality reserves and routine disclosures for payment-grade tokens; heightened scrutiny or outright exclusion for designs that can’t meet those tests.
Misconceptions to retire
It is tempting to dismiss stablecoins as just another speculative wager in a risky market. Regulators disagree. New York’s 2022 guidance set the tone – redeemability at par, full reserve backing and independent monthly attestations – and the US GENIUS Act has since cemented a nationwide framework that treats payment stablecoins as money-like claims with explicit safeguards, including in insolvency.
These are not the rules one writes for a punt; they are the rules one writes for instruments intended to behave like cash equivalents.
Another hardy myth is that “algorithmic stablecoins will do.” Supervisors have been unambiguous: if stability relies on reflexive algorithms and not fully backed reserves, the design fails the effective-stabilisation test. The FSB’s recommendations say this plainly, and policymakers have built regimes on that foundation.
Finally, central bank digital currencies are not a binary replacement for everything else. The policy direction is towards a layered system in which public money anchors the architecture while regulated private forms (tokenised deposits and, in some jurisdictions, tightly supervised stablecoins) operate alongside it.
The BIS’s blueprints and recent bulletins envisage exactly this kind of tokenised future: central bank money at the core, with private tokens interacting under clear rules. In practice, payments evolve this way because it works.
