Stablecoin Surge Compels Basel to Address Regulatory Inflexibility

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Stablecoin Surge Compels Basel to Address Regulatory Inflexibility

Bitget-RWA2025/11/20 09:26

By:Bitget-RWA

- Global regulators, led by the Basel Committee, face pressure to revise strict 1,250% capital requirements for stablecoins as their role in institutional finance expands. - The U.S. Fed, Bank of England, and EU reject current rules, citing impracticality, while stablecoins like USDT/USDC now underpin regulated crypto derivatives and yield products. - Basel chair Erik Thedéen acknowledges the need for a "different approach" to risk-weighting stablecoins, which now enable institutional access to crypto mark

Global banking regulators are reconsidering their tough capital rules for digital currencies as the stablecoin sector experiences rapid growth, with the Basel Committee under increasing pressure to adjust regulations that have largely kept banks out of the crypto space. The committee's existing policy, which

assigns a 1,250% risk weighting to crypto holdings

, essentially requires banks to set aside $1.25 in capital for every $1 of crypto exposure, making it nearly impossible for most banks to directly enter the crypto market. This stringent policy, originally intended to address the volatility of assets like

Bitcoin

, is now being questioned as stablecoins—which are meant to maintain a fixed value against traditional currencies—are becoming essential tools for cross-border payments and institutional transactions

according to reports

The Basel Committee's uncompromising stance has met with open opposition from leading economies. Both the U.S. Federal Reserve and the Bank of England have indicated they will not adopt the rules as they stand, with Federal Reserve representatives describing the capital requirements as "impractical" and "not grounded in reality"

according to analysis

. Japan and the European Union have also taken different paths, with the EU implementing some aspects of the framework but leaving out measures aimed at permissionless blockchains

as noted in financial reports

. This resistance highlights a wider industry trend: stablecoins like Tether's

USDT

and Circle's

USDC

have become foundational to institutional products, including platforms that generate yield and derivatives trading

as demonstrated by new products

Stablecoin Surge Compels Basel to Address Regulatory Inflexibility image 0

The swift rise of stablecoins has challenged previous beliefs about their risks. Erik Thedéen, who chairs the Basel Committee, admitted in an interview with the Financial Times that the growth of stablecoins has been "quite significant,"

requiring a "new strategy"

for risk assessment. This review is pressing, as stablecoins now support offerings like SGX Derivatives' recently introduced Bitcoin and

Ethereum

perpetual futures, giving institutional investors access to crypto markets within a regulated, exchange-based system

as reported in press releases

. At the same time, companies such as Figment and Crypto.com are promoting yield products with annual returns of 15% for institutional clients, reflecting a rising appetite for stable and predictable earnings in the stablecoin market

as highlighted by market analysis

European regulators are also confronting the challenges posed by these developments.

A former European Central Bank official warned

that without active measures to back euro-linked stablecoins, Europe could lose its influence in shaping the future of global finance. This concern echoes broader initiatives by companies like Alibaba and JPMorgan to tokenize fiat currencies for more efficient international payments

as observed in market trends

, further highlighting the importance of stablecoins in upgrading financial systems.

The Basel Committee's 2022 guidelines, scheduled to be enforced in January 2026, are already being reconsidered. Thedéen stressed the importance of "rapid evaluation" to determine whether stablecoins—and, by extension, permissionless blockchains—should continue to carry the 1,250% risk weight or be reclassified. The decision will shape whether banks can join the next wave of crypto innovation, balancing progress with financial stability. For now, the gap between regulatory caution and the pace of market development remains wide, with the U.S. and UK

at the forefront of advocating for more adaptable regulations

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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