Stablecoins, which are virtual digital assets (“VDA”) typically pegged to stable assets like fiat currencies, are being recognised as the cornerstone of digital finance revolution, delivering a blend of traditional currency stability and decentralised innovation. As their global adoption accelerates — from everyday retail transactions/ cross-border remittances to institutional treasury operations — governments worldwide are realising that clear, forward-thinking regulation can foster innovation and help their economies stay ahead of the pack.

In this FIG paper, we focus on the developments in the regulatory landscapes and use cases of stablecoins globally. Then, focussing on India, discuss how these use cases have been adapted to the existing regulatory framework, and reflect on the opportunities and hurdles for India to compete globally in this space, based on our learnings from both domestic and offshore VDA players.

Global Regulatory Landscape and Market Trends

By December 2024, the market capitalisation of Stablecoins had touched USD 205 billion, competing strongly with mainstream financial products. As a result, governments across the world are riding global headwinds to enable frameworks for stablecoins backed by currencies.

United States of America (USA)

Following the Trump administration’s pro-crypto mandate, the US Congress is debating new stablecoin legislation, i.e., the “Guaranteeing Electronic Neutrality, Innovation, and US Stability” (GENIUS) Act in the Senate and the “Stablecoin Tethering and Bank Licensing Enforcement” (STABLE) Act in the House that mandate 1:1 reserve backing, transparent audits, redemption rights, and compliance with anti-money laundering (AML) requirements.

The US Securities and Exchange Commission (“SEC”) has issued a statement, indicating that stablecoins (backed by low-risk, liquid assets) do not constitute securities, prompting the SEC to drop its longstanding civil lawsuits against exchanges Ripple, Coinbase, and Kraken.

As a result of, large corporations and banks are now backing innovation in stablecoin, by launching use cases for cross-border remittances, B2B payments, collateral in lending protocols, and payment network cards linked to stablecoin wallets.

European Union (EU)

The EU introduced the Markets in Crypto-Assets (“MiCA”) regulation to govern, inter alia, e-money tokens (i.e., fiat-backed stablecoins), asset-referenced tokens (i.e. liquid asset backed stablecoins) and algorithmic crypto-assets (stablecoins that maintain value by deploying an algorithm to increase/ decrease supply based on demand). MiCA aims to unify EU-wide rules, offering a “passport” to issuers who meet these requirements. This clarity has already led major stablecoin issuers, including Circle, Crypto.com, and Societe Generale, to seek authorisation in Europe.

We are, however, seeing that the mandate to actively maintain a proportional reserve of assets, subject to EU law (to cover market and currency risks), is causing issuers to rethink operating in the EU, against more lucrative treasury options denominated in USD.

United Arab Emirates (UAE)

In the UAE, the Abu Dhabi Global Market (ADGM) and Dubai’s Virtual Assets Regulatory Authority (VARA) mandate licensing, prudential requirements, and strong disclosures for stablecoin issuers. Sandboxing programmes help them test offerings in a controlled environment. The UAE’s strategic positioning as a financial hub has driven stablecoin usage in import-export payments and remittances throughout the Middle East and North Africa (MENA) region, including recent plans by the Abu Dhabi sovereign wealth fund ADQ, conglomerate IHC (IHC AD) and the UAE’s biggest lender by assets First Abu Dhabi Bank (FAB) to launch a dirham-backed stablecoin.

Singapore & Japan

The Monetary Authority of Singapore has established a licensing regime for single currency stablecoins (SCS) and prescribed requirements for maintaining asset reserves (such minimum base capital and liquid assets). Interestingly, Singapore is seeing collaboration between stablecoin issuers and major digital payment brands, enabling stablecoin-based “purpose-bound money” for e-commerce and cross-border remittances.

Japanese local banks have explored stablecoin issuance for domestic payments, and stablecoin usage is growing in areas like e-commerce, though adoption remains carefully overseen by the Japanese regulator, i.e., Financial Services Agency.

Stablecoin Use Cases in India – Legal & Regulatory Considerations

In recent years, stablecoins have gained significant traction among Indian retail and institutional participants on account of users seeking lower-risk on-chain exposure and aligning with stablecoins’ core proposition: a token pegged 1:1 to a reference asset (and adequately backed to maintain reference value). While payments-based use cases are limited on account of VDAs not being legal tender in India, three primary use cases have emerged.

Portfolio Investment

Unlike most crypto tokens, stablecoins aim to “lock in” their value by holding a reserve of low-volatility assets, such as US Treasury bills or other cash equivalents, to back each token. These features of stability and liquidity capacity drove Indian customers to early adoption.

While stablecoin “sponsorship” is foreign-led, through liquidity providers backing stablecoin pairs, particularly USDT and USDC, the daily purchase and sale of stablecoins in India is almost entirely handled by crypto exchanges, registered with the Financial Intelligence Unit of India (“FIU-IND”) as virtual digital asset service providers (“VDASP”). As the remit of activities undertaken by a VDASP are wide, per the Ministry of Finance notification of March 7, 2023, questions remain on whether such issuers and liquidity providers also require VDASP registration with the FIU-IND.

Further, stablecoin trades are subject to a 30% tax and a 1% tax deducted at source (TDS), without the option to offset losses. This has created an onerous tax burden and ambiguity in potential goods and services tax (GST) on cross-border stablecoin inflows, with tax authorities inconsistently issuing tax demand notices to investors without a clear brightline. This has led to recent shifts to more complex products.

Stablecoin Derivatives

Owing to the domestic VDA tax regime, futures and other derivatives have become a popular alternative for Indian traders. Crypto futures can be more capital-efficient, offer leverage, and sidestep the 1% TDS, though regulators could update these rules in the future. Lobbying efforts by traditional stock market participants could bring crypto derivatives compliances at par with that of stock market derivatives, currently regulated by the Securities and Exchange Board of India (SEBI).

For new entrants, VDASP registration and AML compliance remain mandatory, but the key is the business plan presented to the FIU-IND at the time of registration, specifying the range of product/ service offerings, prudential and consumer protection measures, etc., to ensure regulatory buy-in.

Cross-border Remittances

Key to the global stablecoin conversation is their usage in international money transfers. These transactions can significantly lower fees and settlement time, by eliminating multiple correspondent banks.

Under India’s Foreign Exchange Management Act (FEMA), stablecoin-based remittances remain in a regulatory grey area, although there have been no enforcement actions to date, apart from the FIU-IND issuing penalties for not reporting transactions under India’s AML laws. There also exists a reclassification risk that the Reserve Bank of India (RBI) may view stablecoin transfers as unauthorised foreign exchange being made available to Indian residents, other than through ‘authorised persons’ (i.e., standard banking and forex channels).

At the same time, demand from the Indian diaspora remains high — particularly in corridors where currency volatility or transfer fees are problematic. Exchanges and fintech platforms are innovating with KYC/AML-compliant solutions and forging partnerships with licensed financial institutions. Regulators ought to clarify the classification of stablecoins – as a form of “foreign exchange”, “virtual digital asset” or “prepaid instrument” – to unify compliance obligations.

Opportunities & Way Forward

The total transfer volume of stablecoins hit USD 27.6 trillion last year, surpassing the combined volume of Visa and Mastercard transactions in 2024. The US Federal Reserve rescinded its crypto banking restrictions last week. Mainstream players like Visa, Mastercard, Stripe, Paypal, JP Morgan & Chase, Standard Chartered Bank are building war chests and plans to launch stablecoin offerings. Financial institutions in India and the Indian Rupee risk ceding ground if there is no softening in the regulatory position.

It is an opportune moment to re-evaluate our regulatory outlook through industry-led policy and law-making initiatives, including aligning domestic regulations with existing FSB recommendations for globally systemic stablecoin oversight. Consensus remains that India is a sleeping giant in the VDA industry that should have a more active role in the global stablecoin conversation.