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To understand the future of digital assets, we should look closely at stablecoins. Unlike crypto assets such as Bitcoin, whose prices can fluctuate sharply, stablecoins aim to maintain a stable value by linking themselves to traditional currencies such as the US dollar. This stability has made them a bridge between volatile crypto markets and traditional money. People now use stablecoins for cross-border transfers and, in some countries, for everyday payments.
The stablecoin market has grown rapidly and now exceeds $300 billion. The market also remains highly concentrated, with two major issuers accounting for roughly 90% of its total value. As stablecoin use expands, governments around the world are developing rules to govern how companies’ issue, trade and redeem these digital assets. A recent paper by the Bank for International Settlements (BIS) highlights an important challenge: regulators broadly agree on the need for oversight, but they take different approaches to who can issue stablecoins and what those issuers can do.
Most regulators limit stablecoin issuers to a few core functions: issuing coins, redeeming them and managing the reserves that back them. They also require issuers to hold safe and high-quality assets against the stablecoins they issue. These requirements aim to ensure that users can redeem their stablecoins at their stated value when they need to.
Regulators, however, treat banks and non-bank companies differently. When banks issue stablecoins, authorities often allow them to undertake a wider range of financial activities, including lending and trading. Banks receive this flexibility because regulators already subject them and their wider corporate groups to extensive prudential oversight.
Non-bank issuers usually face tighter restrictions. Regulators may prevent them from undertaking activities such as crypto lending or providing custody services to third parties. These restrictions aim to keep stablecoin issuance separate from riskier financial activities.
But the BIS paper points to a potential weakness: regulators may apply these restrictions only to the company that issues the stablecoin, rather than to its entire corporate group.
This creates a regulatory gap. A company could establish a separate sister company to conduct activities that regulators prohibit for the stablecoin issuer. That related company could then operate under a different regulatory framework while remaining part of the same corporate group. The company would technically follow the rules, but the group could still take on the risks that those rules seek to prevent.
Those risks could eventually reach the stablecoin issuer. If a related company suffers major losses, investors and users could lose confidence in the wider group. Stablecoin holders might then rush to redeem their coins, forcing the issuer to sell reserve assets quickly. If the issuer struggles to meet those redemptions, the resulting pressure could spread through the market.
The lesson is clear: regulators cannot always protect the stablecoin market by supervising only the issuing entity. The BIS paper therefore argues for a wider approach that brings the entire corporate group of non-bank issuers within the regulatory framework.
Regulators could achieve this in several ways. They could restrict the entire corporate group to a defined set of activities. Alternatively, they could require companies to obtain regulatory approval before entering other activities. Under this approach, the relevant authority would supervise each activity and apply the appropriate standards. Regulators would also need to coordinate closely, particularly because stablecoin businesses can operate across jurisdictions.
This global debate matters for India. Digital assets move across borders with ease, so developments in major stablecoin markets can affect markets and users far beyond the country where an issuer operates. As India develops its approach to virtual digital assets, policymakers should consider the risks that may sit outside the stablecoin issuer itself.
Strict rules for the issuing company may not work if its corporate group can simply move riskier activities to related entities. India could address this weakness from the outset by adopting a group-wide regulatory approach. Such a framework could give responsible digital-asset innovation room to grow while protecting financial stability.
Stablecoins may aim to provide stability within the digital-asset ecosystem. Regulators, however, must look beyond the stablecoin itself to understand where instability can emerge. Sometimes, the risk does not sit inside the issuer. It sits within the corporate group around it.
