Stablecoins began as a technical workaround: digital dollars that could move across blockchains while much of the banking system was closed. They have since become something considerably larger. Governments now see them as instruments of monetary influence, payment companies regard them as infrastructure, and banks increasingly treat them as both a competitive threat and a potential distribution rail.
That shift has placed stablecoin regulation at the centre of a contest over the future architecture of money. The emerging rules will determine more than which tokens may circulate. They will influence where financial businesses are established, who earns the income generated by reserve assets and whether digital money remains connected to the institutions it was designed to challenge.
Joey Garcia has observed this transformation from an unusual vantage point. The Executive Director and Chief Strategy, Policy and Regulatory Affairs Officer at Xapo Bank helped build Gibraltar’s early framework for distributed-ledger businesses, represented Xapo in the Libra/Diem Association and advised the United Nations on global cryptocurrency standards. His experience stretches back to a period when the words “Bitcoin” and “regulation” could bring law-enforcement officers, rather than policy specialists, into the room.
Stablecoin Regulation Cannot Be Built on Analogue Assumptions
The instinct of established institutions is often to place a new technology inside an existing legal category. That may preserve familiar terminology, but it does not necessarily address the risks created by a different form of infrastructure.
Garcia argues that the underlying regulatory principles can remain intact. Consumer protection, sound governance, secure custody and financial-crime controls have not lost their relevance. The way those principles are applied, however, must reflect the characteristics of blockchain networks and digital assets.
A banknote cannot reveal where it has travelled since entering circulation. A blockchain transaction can be examined through an immutable trail of data and subjected to sophisticated risk analysis. Treating the two as functionally identical overlooks capabilities that could make compliance more precise.
The difficulty is institutional speed. Technology develops through rapid iteration, while legislation may require years of consultation and political negotiation. MiCA itself emerged from a long process. During that interval, markets grow, businesses make decisions and failures expose weaknesses that policymakers had not yet addressed.
What Libra Changed Without Ever Launching
Libra identified a genuine flaw in global payments and assembled major companies around a shared attempt to repair it. Its collapse is sometimes presented as evidence that the technology was premature. Garcia offers another diagnosis.
The original project combined two politically explosive ideas: a synthetic currency backed by a basket of assets and a governance structure widely perceived as being dominated by Facebook. The result was a simultaneous threat to monetary sovereignty and a concentration of private power. Neither the consortium model nor the underlying technology was necessarily fatal. The framing was.
Libra nevertheless left a considerable legacy. It forced governments to examine stablecoins before the sector’s transaction volumes made inaction impossible. It helped accelerate the policy discussions that eventually produced more comprehensive frameworks in Europe and the United States.
The lesson is uncomfortable for cautious operators. Businesses that seek approval before acting can spend years waiting while less conservative competitors accumulate customers and market share. Yet companies that move too far beyond the regulatory perimeter may damage their relationship with supervisors beyond repair. Innovation therefore advances through a narrow corridor between delay and overreach.
Open USD Changes Who Captures the Economics
Open USD returns to the idea of a shared digital currency, but the political and commercial environment has changed. Its prospective strength lies less in free issuance or redemption than in distribution. More than 140 participating businesses already possess customers, payment flows and infrastructure through which the asset could circulate.
Its economic design is equally significant. Conventional issuers retain much of the income earned from Treasury bills and other assets backing their stablecoins. Open USD proposes sharing reserve income, after costs, with independent partners that contribute to distribution and adoption. The stablecoin becomes a network whose members have a direct financial reason to expand it.
The strategic importance of stablecoin regulation becomes visible here. US restrictions on paying yield through issuers or affiliated entities could affect how such arrangements are structured. Whether profit-sharing with independent partners receives different treatment will help determine the durability of the model. The CLARITY Act and its market-structure provisions may prove as consequential as the rules aimed specifically at payment stablecoins.
Governance will present another test. A consortium with globally recognised members brings credibility and reach, but a long list of logos does not automatically produce an effective operating coalition. Shared incentives can attract participants; they cannot eliminate the slow work of collective decision-making.
A Bitcoin-Native Bank Tests Convergence
Xapo Bank approaches the divide between banking and crypto from the middle. Garcia describes it as a Bitcoin-native company that obtained a banking licence, rather than a conventional bank experimenting with blockchain because the technology has become fashionable.
That distinction shapes its product design. According to Garcia, customers can send USDC or USDT and receive US dollars in a bank account. The stablecoin serves as a payment rail rather than an interest-bearing asset. Interest generated on the dollar deposit is then converted and paid to the customer in Bitcoin.
The arrangement separates three functions that are frequently bundled together: blockchain-based transfer, regulated deposit-taking and exposure to Bitcoin. The underlying yield comes from conventional, highly liquid assets, while its method of payment preserves the company’s crypto-native identity.
This is what financial convergence looks like in practice. A customer may participate in decentralised markets yet still need a bank account, a mortgage or ordinary retail payments. Building an entirely separate crypto economy would leave that customer moving repeatedly between disconnected systems. A more durable model allows the systems to interact while applying appropriate standards at their points of contact.
America Opens the Door as Europe Raises the Threshold
Garcia sees a widening philosophical difference between major jurisdictions. The United States increasingly asks whether a business has the people, capital, systems and expertise required to operate responsibly. Failure remains possible, provided the company has met the required standards. That approach accepts unsuccessful ventures as part of an innovative market.
The EU and UK appear more concerned with reducing the possibility of failure before authorisation is granted. Restrictions on stablecoin interest, reserve requirements and proposed limits on the use or ownership of digital pounds illustrate a preference for control. Each measure may be defensible in isolation. Together, they can weaken the economics of a product before it reaches meaningful scale.
MiCA’s next phase will show whether Europe can ease that tension. Questions concerning interest, recognition of third-country stablecoins and cross-border equivalence are becoming unavoidable. A digital market is inherently international, yet licensing remains territorially fragmented. Requiring a separate authorisation in every market may protect local consumers while producing an increasingly enclosed financial system.
DeFi poses the harder problem. Fully decentralised protocols may sit outside parts of the existing framework, but control, influence or the arrangement of transactions can pull intermediaries back within it. Regulators must decide whether to define a workable boundary or gradually bring most activity into prudential scope.
Self-custody will be part of the same debate. Garcia considers it an essential feature, but rejects a financial system split into regulated and unregulated halves that cannot interact. The more consequential rules will govern the edge: how banks and licensed platforms assess and manage transactions involving unhosted wallets.
The winners in stablecoin regulation will not necessarily be the jurisdictions with the shortest rulebooks or the strictest safeguards. They will be those capable of combining legal certainty, competent supervision and enough tolerance for responsible failure to let new infrastructure develop. Five years from now, the industry’s success may be measured less by the number of tokens issued than by two quieter achievements: the absence of a major collapse and the end of persistent regulatory ambiguity.
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