The advancement of stablecoins faces significant obstacles due to regulatory complexity and the lack of robust infrastructure for conversion into fiat currencies. In the United States, the GENIUS Act imposes strict rules on issuers of these digital assets, establishing requirements aimed at greater security for users. However, meanwhile, the layer responsible for conversion between stablecoins and traditional currencies remains subject to varied and fragmented rules.
In the United Kingdom, the Financial Conduct Authority (FCA) is in the process of defining rules covering issuance, custody, and prudential requirements for stablecoins. On the other hand, the market observes that the onchain infrastructure responsible for the off-ramp operates under existing regimes such as Money Service Businesses (MSBs) and Electronic Money Institutions (EMIs). This regulatory overlap creates operational challenges and increases the costs involved in conversion.
In March 2023, for example, the temporary devaluation of USDC highlighted the fragility of the system in the face of the accelerated growth of stablecoin circulation. This situation underscored the lack of standardization and operational reliability for fast and secure conversion into fiat currency. The fragmentation of processes and high costs continue to limit widespread adoption of these digital assets.
Furthermore, many companies are required to maintain two separate treasuries: one dedicated to digital assets and the other to traditional payments. This duality complicates the integration of financial flows and increases the complexity of daily operations. Therefore, the absence of scalable institutional infrastructure restricts the use of stablecoins for payments in euros, pounds, or dollars in an efficient and regulated manner.
Regulations reinforce requirements for fiat-backed stablecoins but do not adequately cover so-called synthetic stablecoins, which operate with mechanisms of over-collateralization and automatic market adjustments. This maintains a regulatory gap for these assets, which do not fit within the rules applied to traditional stablecoins.
To resolve some of these difficulties, modular compliance platforms are emerging in the market, regulating the onchain issuance and fiat currency conversions separately. These solutions are operated by authorized entities, facilitating adherence to specific rules without the need for multiple licenses. In this way, they allow greater flexibility and potential for scalability of operations.
The development of this modular architecture has been exemplified by recent initiatives from major players such as Visa, Circle, and Stripe, which have launched products involving real uses of USDC in regulated transactions. Even so, the interconnection between issuers and converters still requires standardization in terms of service level agreements, processing times, reporting, and accounting reconciliations.
In practice, this lack of an integrated standard hinders full market confidence and limits widespread adoption of stablecoins in global financial systems. The new regulatory level highlights a mismatch between the regulation of stablecoin issuers and traditional financial systems managing conversion to fiat currency. This divergence remains an obstacle to the full integration of these digital assets into conventional financial flows.
Artem Tolkachev, head of real world assets (RWA) at Falcon Finance, emphasizes that current limitations in the conversion process between onchain and off-ramp restrict the potential of stablecoins. He points out that the current scenario makes it difficult to perform high-volume daily payments in stablecoins with compatible costs and uniform regulatory compliance.
The conclusion of the process will depend on the evolution of regulations and the expansion of infrastructure for fast and predictable large-scale conversion. Beyond regulatory analysis, technological improvement will be essential to overcome current challenges and enable broader use of stablecoins in international payments.
