Stablecoins in the Payments Ecosystem: Reflections on Responsible Innovation

Ladies and gentlemen, distinguished guests and colleagues,

Welcome to the XIV edition of the 'Economics of Payments Conference'.¹ It is a pleasure to host this prestigious gathering of policymakers, regulators, academics, and private sector professionals who are at the forefront of the evolution in payments. Banca d'Italia, in collaboration with the Committee on Payments and Market Infrastructures (CPMI), is pleased to welcome you for two days of rigorous dialogue, data-driven insights, and collaborative vision-setting. In a period marked by both profound uncertainty and unparalleled opportunities spurred by technological innovation, such dialogue is more essential than ever.

This year, we are especially delighted to welcome Professor Fernando Alvarez, from the University of Chicago, and Miguel Díaz, Head of Strategy at the BIS Innovation Hub, as keynote speakers. The program features 27 papers across 7 themed sessions, showcasing perspectives from central banks, international institutions, academia, and fintech.

Sessions span topics from the macroeconomics of digital currencies, payments, and payment choices to the granular realities of payment instrument adoption, cross-border payments and remittances, interoperability, and financial stability. Additional poster sessions will allow for deep dives into new data and methods for the study of retail payments and into the nuts and bolts of payment infrastructures.

With its rich menu, the conference offers not only food for thought but hopefully some viable considerations for guiding practice and policy. The variety of topics in fact confirms the vivacity of payments in the current environment, which makes an integrated view comprising technical, academic, and policy perspectives crucial to support innovation that is secure, efficient, inclusive, and resilient.

And it is hard to speak about payments innovation without mentioning the increased role played by the crypto-assets market and stablecoins. In the remainder of my remarks, I will thus focus on recent developments in the stablecoin market, an area that has attracted growing interest for its potential use cases but that continues to present relevant challenges.

On the one hand, that is, stablecoins are often presented as promising tools for lowering transaction costs, enhancing efficiency, and enabling 24/7 availability.² On the other hand, they carry inherent vulnerabilities such as run risk and interconnectedness, which could lead to financial stability concerns. Having discussed these risks in other venues,³ today I would like to focus on two open issues: regulatory fragmentation and multi-issuance models.

Market snapshot and recent developments

Stablecoins are digital tokens recorded on distributed ledgers ('on-chain') that aim to maintain a stable value relative to a reference asset, including fiat currency such as the US dollar or euro. In the case of fiat currency, stability is achieved by ensuring - or attempting to ensure - convertibility at par value, on demand. Unlike unbacked crypto-assets, such as Bitcoin or Ether, stablecoins are designed to be redeemable and anchored to external value reserves which are often, but not always, held in (the form of) liquid and low-risk assets.⁴

As of last week, global crypto-asset capitalization exceeded 4 trillion US dollars. Stablecoins now represent nearly 300 billion dollars - about 7.5 per cent of the crypto market - marking a 75 per cent year-over-year growth.

The sector remains heavily concentrated.⁵ Tether's USDT accounts for 56 per cent of the market; followed by Circle's USDC with 25 per cent.⁶ Together, these two US dollar-pegged stablecoins dominate 80 per cent of the space. In total, stablecoins that aim to maintain parity with the USD make up 98 per cent of the global market.

In stark contrast, euro-denominated stablecoins account for about 620 million dollars in market capitalization - about 0.2 per cent of the total. The largest are EURC (Circle) and EURS (Stasis), collectively holding 60 per cent of this subsegment.

At present, stablecoin demand is spurred by four main drivers.⁷ First, stablecoins primarily serve as a transactional bridge for entering and exiting the crypto-asset ecosystem.⁸ Their role is closely tied to enabling liquidity flows across trading platforms and decentralized finance (DeFi) protocols, where they function as readily transferable digital tokens.

Second, in emerging markets plagued by inflation, currency volatility, and high remittance costs, stablecoins may offer an alternative to more traditional solutions to store value and transfer funds, such as those operated by banks and money transfer operators (MTOs).⁹

Third, although retail adoption is still limited, many companies are testing stablecoin integrations for programmable B2B payments.¹⁰ Some stablecoins issuers have partnered with major payment networks to embed stablecoin use in settlement layers.

Fourth driver is the potential for illicit activity - such as fraud, money laundering, and sanctions evasion - which can overlap with the other use cases and remains a significant concern. Stablecoins' ease of use, global accessibility, and the limited traceability of certain protocols make them particularly susceptible to misuse. Although accurately quantifying such activity remains challenging,¹¹ these features underscore the need for strong regulatory oversight and effective monitoring mechanisms as their adoption grows.¹²

A recent analysis has attempted to quantify the primary use of the existing stablecoins described above.¹³ According to this research, crypto trading activities represent the most important use case (about 90 per cent of volume) while payments use cases (cross-border remittances, corporate treasury and P2P) represent a small fraction (roughly 6 per cent). Whether stablecoins truly offer a faster and more cost-effective alternative to traditional payment channels (e.g. banks and remittance services) remains an open question. In this regard, it is worth noting that while various types of crypto products are used as a means of payment, only stablecoins pegged to a single fiat currency are suitable for this function, also because they offer a high level of customer protection through the right to redemption at their nominal value.¹⁴

According to the World Bank, the average global cost to send a 200 USD remittance in 2024 stood at around 6.5 per cent, with significant regional variation depending on provider, corridor and regulatory framework.¹⁵ Other sources¹⁶ estimated that using stablecoins to send a 200 USD remittance from sub-Saharan Africa reduces costs by approximately 60 per cent compared to traditional methods.¹⁷ And some market operators claim that stablecoins can enable low-cost settlement, with transaction fees often below 0.01 USD on certain Layer 2 networks.¹⁸ However, these figures typically exclude critical components of the payment chain - such as 'last mile' delivery costs, on/off-ramp fees, and foreign exchange charges. As a result, the overall efficiency of stablecoins may be overstated, particularly when evaluated against the full end-to-end expense of cross-border payments.

Focusing on the largest stablecoins (Circle and Tether) a recent analysis run by the IMF¹⁹ confirms that Tether's USDT is more popular in regions with the most emerging economies - Africa and the Middle East, Asia and the Pacific, and Latin America and the Caribbean -while Circle's USDC is more prevalent in regions with more advanced economies, i.e. Europe and North America.

As to the use of euro-denominated stablecoins, while data remains rather limited, early evidence suggests that they are primarily exchanged against dollar-denominated stablecoins. Internal analyses²⁰ also indicate that the euro-dollar exchange rate may influence the market capitalization of euro-denominated stablecoins: periods of euro depreciation tend to coincide with increased demand for euro stablecoins, possibly reflecting European investors' search for positive returns during dollar appreciation.

Traditional institutions are responding to shifting dynamics in the stablecoin market and to the growing use cases just described. Several banks in the US and Europe have announced plans to issue their own stablecoins, often citing client demand for more efficient digital payment solutions. Recent strategic alliances - involving large international banks and crypto-exchanges - aim to bridge the gap between fiat and crypto ecosystems. Meanwhile, some BigTech platforms are developing embedded stablecoin solutions.

Challenges and risks

As the financial system continues to evolve, stablecoins and other innovative instruments deserve our close attention. These instruments may offer novel solutions to long-standing issues in payments and financial intermediation, particularly in the cross-border context. However, their growth also raises important questions about governance, stability, their potential misuse for illicit purposes, and the consistency of oversight across jurisdictions.²¹ As we navigate this landscape, it is essential that we remain open to the opportunities presented by modern technologies, while carefully evaluating their potential impact on the broader financial system. Striking the right balance between enabling innovation and safeguarding key policy objectives - such as financial stability, monetary sovereignty, financial inclusion, consumer protection, and trust in money - remains a major challenge for public authorities.

Today I would like to highlight two vulnerabilities that, in my view, are particularly relevant, not only because of their potential systemic impact, but also because of the specific institutional and regulatory context in which we operate.

Regulatory fragmentation

At an international level, several jurisdictions have either adopted or are finalizing dedicated regulatory frameworks for crypto-assets.²² While the institutional approaches may differ, they all share the same objective: to establish clear rules that enhance legal certainty, strengthen consumer protection, and safeguard market integrity. I will focus on a comparison between the European and American frameworks, sharing some preliminary thoughts with you.

Both the EU's Markets in Crypto-Assets Regulation (MiCAR) and the US Genius Act provide a regulatory regime for stablecoins, including licensing regimes, operational and compliance requirements, and restrictions on the composition of reserve assets for issuers. However, the two frameworks differ in important respects, particularly when it comes to scope, enforcement, and the degree of holders' protection.

In terms of scope, the US framework is narrower, focusing specifically on payment stablecoins. By contrast, MiCAR applies to a much broader category of crypto-assets that are not already covered by existing financial regulation. In terms of enforcement, MiCAR introduces a robust supervisory framework for crypto-asset service providers (CASPs), requiring authorization from national competent authorities and imposing detailed obligations regarding governance, capital, the segregation of client assets, and the conduct of business. The Genius Act takes a lighter-touch approach and currently leaves many service providers outside its scope.²³ Regarding crisis management, MiCAR requires stablecoin issuers to draw and maintain recovery and resolution plans, whereas the Genius Act provides only limited tools.

Another difference concerns redemption fees. MiCAR requires that stablecoin issuers guarantee the redemption of single-currency stablecoins at par without imposing fees, while the US rules allow for users to be charged for payment stablecoins.²⁴

In addition, unlike the Genius Act, MiCAR addresses issues of market abuse directly. In this sense, the European framework adopts a broader approach to investor protection and market integrity.

Other jurisdictions are moving in different directions. For instance, in the United Kingdom, draft legislation published by the UK Treasury²⁵ proposes that only stablecoins issued from within the UK should be subject to regulatory oversight - those issued abroad could still be traded on UK exchanges. Meanwhile, Japan, Singapore, and Hong Kong have developed their own models. These divergences raise concerns about regulatory fragmentation and the potential for arbitrage, which could undermine supervisory coherence.

This brings me to the second issue I would like to discuss today.

Multi-issuance stablecoins

Multi-issuance stablecoins (MISC) are tokens issued under a single brand by multiple entities operating in different jurisdictions. Those tokens are fully fungible, regardless of the issuer.²⁶ Under this scheme, EU stablecoin issuers could receive redemption requests from third-country token holders. If sufficient reserves are unavailable in the EU to meet these requests, the third-country entity is expected to transfer assets.

Although this architecture could enhance global liquidity and scalability, it poses significant legal, operational, liquidity and financial stability risks at EU level, particularly if at least one issuer is located outside the European Union. In these cases, liquidity risk is heightened, as each co-issuer could be held liable for the entire outstanding token volume, even though they only hold a small fraction of the corresponding reserve assets, simply because holders, whether resident or non-resident, view all tokens as interchangeable. This can lead to a mismatch between obligations and available reserves, especially if redemptions are concentrated in the EU while reserves are held abroad or on the balance sheets of other issuers.

Further complications arise from inter-issuer agreements, such as reserve rebalancing mechanisms, which may shift liabilities across jurisdictions in an uncoordinated manner. In a crisis, these flows could be triggered rapidly, leaving authorities with limited oversight and delayed reaction capacity. This structure challenges not only the prudential resilience of the individual issuers, but also the integrity of the broader regulatory framework.

This structural fragility is exacerbated by legal and operational risks. When an EU-based issuer holds reserves in a foreign currency (i.e. US dollars), those assets are usually located in the country where they were issued, often outside the EU. This means the reserves may be subject to foreign capital controls, regulatory restrictions, or settlement delays, particularly in times of market stress. Without strong safeguards - such as regulatory equivalence, the mutual enforceability of redemption rights, and the free transfer of reserve assets across borders - these arrangements become more vulnerable, opening the door to fragmented investor treatment, moral hazard, and broader systemic vulnerabilities.

In addition, in a multi-issuance model, third-country issuers are not necessarily subject to the same consumer protection, transparency, and disclosure requirements as those set out in MiCAR. This asymmetry may leave European token holders with lower levels of protection.²⁷

To mitigate these risks and avoid regulatory blind spots, issuance should be limited to jurisdictions that uphold equivalent regulatory standards, ensure redemption at par, and enforce cross-jurisdiction crisis protocols. The robustness of a multi-issuer framework hinges on strong cross-border cooperation among supervisory authorities, including mechanisms to consistently monitor and verify the adequacy of reserves in terms of size, quality, and location.²⁸

Without such coordination, there is a real risk of regulatory arbitrage, whereby activity gravitates towards the jurisdiction with the least stringent regulations, thereby undermining financial stability and investor confidence. For this reason, clarity at the legislative or standard-setting level would be both timely and valuable - helping to establish a common playing field, to prevent free-riding, and to promote a more coherent and resilient global approach to stablecoin oversight.

In search of a path: policy reflections

Amidst growing risks and challenges, innovation is reshaping the financial ecosystem. Stablecoins, other crypto-assets, tokenized deposits, central bank digital currencies, and additional novel instruments are being explored as potential solutions to reduce frictions in the payments landscape.

For this transformation to be meaningful and sustainable, these new forms of money and services must address users' needs, without compromising financial stability, market integrity, and inclusion. But the pace of change, the complexity of emerging use cases, and uneven regulation across jurisdictions require a consistent and forward-looking policy response.

Let me share a few reflections on how we might navigate these uncharted waters.

First, international cooperation remains vital because digital technologies transcend borders. Guidelines and recommendations by international standards bodies and the G20's roadmap on cross-border payments provide a solid foundation on which to develop an effective regulatory framework. But fast-moving progress demands continuous dialogue, adaptable frameworks, and shared accountability.

Second, innovation must be fostered responsibly, establishing clear rules and standards that balance openness to new technologies while safeguarding financial stability, consumer protection, and sound market functioning.

Third, data are critical. To identify risks early and to tailor effective responses, we need common metrics and close collaboration with the scientific community and the private sector in order to develop better tools and models.

Returning to the topic of stablecoins, we need specific safeguards for multi-issuance stablecoins, which pose complex cross-border challenges. These arrangements require a high degree of trust and transparency between jurisdictions. Key safeguards should include regulatory equivalence, mutual enforceability of redemption rights, and the absence of legal or operational barriers to asset transfer, especially during crisis periods.²⁹ One of the key lessons (learnt) from the global financial crisis is that ring-fencing cannot substitute coordination. In a globally interconnected system, divergence only amplifies risks.

Supervisory frameworks also need to evolve. Activities such as staking, yield farming, and crypto-lending often replicate traditional banking functions but without equivalent oversight. The principle of 'same activity, same risk, same regulation' must guide our approach.

Finally, competition must be preserved. While stablecoins may comply with financial regulations, their integration into global digital platforms could create potential market imbalances. Ensuring a level playing field is critical for protecting consumer choice and maintaining trust. In this regard, the European Commission's 2024 review of the definition of relevant markets for antitrust purposes is a timely and welcome step.

Through all of this, the role of central banks remains clear: to provide certainty in uncertain times. We must enable innovation while preserving trust, encourage competition while ensuring cohesion, and support progress without compromising prudence.

The path ahead may be complex but it is also full of potential. It is a path that we must navigate together - with clarity, coordination, and commitment.