Founder
October 12, 2025
22 min read
At the heart of the digital asset ecosystem's evolution lies stablecoins, a critical innovation that merges the efficiency of blockchain technology with the stability of traditional assets. Initially conceived as a safe harbor against the extreme volatility in cryptocurrency markets, this asset class has rapidly become an indispensable infrastructure layer for the digital economy. Today, they bridge the gap between TradFi (Traditional Finance) and DeFi (Decentralized Finance), facilitating trillions of dollars in transactions.
The exponential growth, with market capitalization quickly surpassing $200 billion, brought systemic risk concerns to the forefront. The catastrophic collapse of the algorithmic stablecoin TerraUSD (UST) in 2022, resulting in the vaporization of tens of billions of dollars and triggering market panic, served as a turning point for global regulators. This event starkly revealed the potential for stablecoins to threaten global financial stability, not only within the crypto ecosystem but also through the traditional financial assets (such as U.S. Treasury bills) held as reserves. These developments have spurred regulatory bodies worldwide, initiating a global and coordinated effort to encircle this systemically important asset class with robust legal frameworks. This report analyzes the complex world of stablecoin regulation, covering financial stability risks, global frameworks like MiCA and the GENIUS Act, and Turkey's position, aiming to provide a strategic roadmap for industry professionals.
Stablecoins are digital assets designed to minimize the high price volatility inherent in cryptocurrencies, pegging their value to stable assets like the U.S. dollar, gold, or other reliable instruments. Their primary function is to offer a secure store of value and an efficient medium of exchange within the crypto ecosystem and for everyday transactions. This stability makes them indispensable for DeFi (Decentralized Finance) while also securing a critical role in cross-border payments and as a hedge against high inflation.
Stablecoins are divided into four main categories based on the mechanisms they use to maintain their peg. These mechanisms directly affect the stablecoin’s reliability and risk profile.
This is the most common model, where every unit in circulation is backed 1:1 by fiat currency (mostly U.S. Dollars) or other low-risk, highly liquid assets like short-term government bonds, held in the issuer's reserves.
Risk: Reliability hinges on the centralized trust placed in the issuer and the responsible, transparent management of reserves.
Market Leaders: Tether (USDT), USD Coin (USDC), PayPal USD (PYUSD).
In this model, the stablecoin is backed not by a centralized issuer, but by other cryptocurrencies (e.g., Ethereum) locked as collateral via smart contracts.
Risk: The system operates on the principle of over-collateralization to absorb the volatility of the underlying crypto asset, posing a liquidation risk during market crashes.
Example: MakerDAO (Dai - DAI).
These stablecoins peg their value to physical commodities such as gold or silver, offering investors the ability to digitize investments based on precious metals.
Risk: Dependent on the security and auditability of the physical assets held as collateral.
Gold-Backed Examples: PAX Gold (PAXG), Gram Gold (GRAMG).
This model does not rely on any external collateral for stability; instead, it attempts to automatically manage the stablecoin’s supply and demand through smart contracts and algorithms.
Risk: Considered the most fragile model due to the risk of spiraling out of control under extreme market pressure, leading to a "death spiral."
Stablecoins act as a bridge between crypto markets and traditional finance, becoming the cornerstone of DeFi. Furthermore, their efficiency in cross-border payments and their popularity as a high-inflation hedge threaten traditional payment channels. The fact that issuers hold large amounts of U.S. Treasury bonds means that a failure in the stablecoin market carries systemic risk for mainstream finance. This makes the urgent regulation of stablecoins for the integrity of the financial system essential.
Be the first to be informed about our new articles, opinions and case studies in the field of Blockchain.
The primary reason stablecoins have been placed at the center of the regulatory radar is the systemic risk they pose, which materialized vividly with the 2022 TerraUSD (UST) collapse. Regulators aim to supervise large stablecoins that perform bank-like functions, operating under the principle of “same activity, same risk, same regulation.”
The risks posed by stablecoins make regulatory intervention urgent to prevent a potential financial crisis.
Stablecoins are structurally similar to deposit-taking institutions, making them vulnerable to traditional prudential risks.
“Run” Risk (Digital Bank Run): The danger that the stablecoin may lose its peg when investors collectively demand redemption due to a loss of confidence. The fact that even USDC briefly lost its peg during the SVB bankruptcy serves as concrete proof of this risk.
Liquidity Mismatch: Issuers’ inability to quickly liquidate reserves can prevent them from meeting sudden redemption demands, thereby triggering a “run” risk.
Contagion Risk: The potential for a major stablecoin collapse to spread to traditional finance by forcing the large-scale, compulsory sale of Treasury bonds held in reserves, thereby disrupting short-term credit markets.
The stablecoin market suffers from structural issues that threaten users and overall market health.
Lack of Transparency: Insufficient transparency regarding the composition and auditing of reserves creates continuous doubt as to whether the stablecoin is truly fully collateralized.
Operational Risks: Risks stemming from complex technology, such as smart contract vulnerabilities, cyberattacks, and operational outages, can lead to the theft of user funds or system failure.
The borderless and rapid nature of stablecoins necessitates strong AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) controls.
Illicit Finance: Stablecoins have become an attractive vehicle for illicit activities like money laundering, terrorist financing, and sanctions evasion.
Institutions like the Financial Stability Board (FSB) and the European Central Bank (ECB) have noted that the size of the stablecoin market is comparable to the subprime mortgage market that triggered the 2008 global financial crisis, advocating for the application of banking standards to prevent a systemic crisis.
The entire value proposition of a collateralized stablecoin rests on the promise that every token in circulation is backed 1:1 by an equivalent value of reserve assets. The verifiability of this promise is the cornerstone of stablecoin regulation, essential for establishing user trust and preventing potential crises.
Global regulatory frameworks require stablecoin issuers to adhere to three core principles when managing their reserves:
Asset Quality and Liquidity: Reserves must consist only of high-quality, highly liquid assets (cash, short-term government bonds) to ensure redemptions can be met seamlessly, even during market stress. High-risk or illiquid assets are prohibited.
Segregation and Custody: Reserve assets must be completely segregated legally from the issuer’s own corporate funds and held by qualified third-party custodians like licensed banks. This protects token holders even if the issuer becomes insolvent.
Full Collateralization: Regulations strictly mandate that the market value of reserves must always be 100% or greater than the nominal value of stablecoins in circulation.
Two fundamental approaches, one traditional and one crypto-native, are used to verify the adequacy of reserves.
This is the method adopted by most regulatory frameworks, requiring issuers to publish regular attestation reports or full financial audits by reputable and independent audit firms to verify the composition and value of their reserves. This provides investors with the highest level of legal assurance.
This is a crypto-native method used by some platforms to cryptographically prove they hold sufficient reserves to cover user assets, enhancing on-chain transparency. However, PoR cannot replace a full financial audit:
Snapshot: It only captures a snapshot in time and does not guarantee that the assets are held continuously.
Scope Deficiency: It cannot verify the quality or existence of off-chain assets like bank deposits.
Legal Vulnerability: It cannot confirm the legal ownership of the assets or whether they are subject to any liens or encumbrances.
For the full integration of stablecoins into the financial system, independent audits are critically important, as they provide legal accountability and adhere to established financial reporting standards, rather than relying solely on cryptographic proofs (PoR).
NOTE: PoR uses a data structure called a Merkle Tree to combine all user balances into a single cryptographic "hash" value, allowing users to verify their balance is included in the total without violating the privacy of others.
The European Union’s Markets in Crypto-Assets (MiCA) Regulation is the world's first comprehensive legal framework for crypto assets. The stablecoin provisions, which came into effect in 2024, aim to ensure legal certainty across the EU, protect investors, and safeguard financial stability.
MiCA divides stablecoins into two main categories based on their collateral mechanisms and imposes strict obligations:
E-Money Tokens (EMTs): Stablecoins that peg their value to a single official fiat currency (e.g., the Euro or USD).
Asset-Referenced Tokens (ARTs): Stablecoins that peg their value to a basket of multiple currencies, commodities, or crypto assets.
Authorization: The issuer must be a legal entity established in the EU and authorized as either a bank (Credit Institution) or an Electronic Money Institution (EMI).
White Paper: Issuers are required to publish a legal document (White Paper) detailing the risks, operating mechanism, and reserve policy.
Reserve Rules: A reserve consisting of high-quality, liquid assets must always be maintained to cover the tokens in circulation at a 1:1 ratio. Algorithmic stablecoins are effectively banned.
Right to Redemption: Token holders must be granted the right to redeem their tokens from the issuer at par value without delay.
According to MiCA, stablecoins are classified as "significant" and subject to additional supervision if they exceed certain thresholds. These thresholds and the relevant supervisory authorities are:
If the market value exceeds 5 Billion Euros,
If the number of users exceeds 10 Million,
If a high transaction volume is reached,
They are supervised by the European Banking Authority (EBA) and the National Authority.
Large EMTs pegged to non-Euro currencies (such as the USD) must halt new token issuance within the EU if their daily transaction volume for payments exceeds 1 million transactions or a total value of €200 million.
MiCA is more than just a financial regulation; it is a strategic move to protect the EU's monetary sovereignty. The global market's heavy reliance on dollar-pegged stablecoins (USDT, USDC) is perceived as a threat to the Euro's role. The limits in MiCA are a dual-purpose strategic tool designed to prevent dollar-based tokens from reaching systemic size within the EU payment system, thereby encouraging the development and adoption of Euro-pegged stablecoins (e.g., EURC) and a future Digital Euro ecosystem.
The United States’ approach to stablecoin regulation was long characterized by a fragmented patchwork of state money transmitter laws and conflicting federal guidance. However, the "Guiding U.S. National Innovation and Security Act" (GENIUS Act), passed in 2025, resolved this uncertainty by establishing the first comprehensive federal framework for payment stablecoins.
The GENIUS Act specifically focuses on payment stablecoins, introducing a prudential regime similar to that of the banking sector.
Dual Licensing Regime: Issuers can either obtain a federal license directly from federal banking regulators or be licensed under a state regime deemed largely equivalent to federal standards.
Jurisdiction of Banking Authorities: Oversight of stablecoin issuers is definitively placed under the authority of federal banking regulators, including the OCC, the Fed, and the FDIC.
Strict Prudential Standards: Issuers are required to back their stablecoins 1:1 with high-quality, liquid assets, publicly disclose the composition of their reserves, and comply with capital and liquidity standards.
Algorithmic Stablecoin Ban: Similar to MiCA, the Act effectively prohibits the issuance of uncollateralized or algorithmic stablecoins.
Perhaps the most critical provision of the GENIUS Act is the jurisdictional clarity it provides, ending years of regulatory ambiguity:
“Not a Security” Definition: The Act explicitly states that a payment stablecoin issued by an authorized issuer will not be considered a security under federal securities laws (SEC jurisdiction) or a commodity under commodities laws (CFTC jurisdiction).
This regulatory choice is strategic: it positions payment stablecoins as an extension of the banking and payment system rather than a speculative asset. By excluding compliant stablecoins from SEC oversight, Congress made a decisive policy choice. The ultimate goal is to encourage a U.S.-based, tightly regulated stablecoin ecosystem, thereby reinforcing the U.S. Dollar's role as the world's primary reserve currency in the digital age.
Explore how the ERC-3643 standard enables secure and regulated security tokenization, a key aspect of asset digitization.
Aiming to lead the global digital asset race, Hong Kong and Singapore have adopted a strategy of using regulatory clarity as a competitive advantage. Both Asian financial centers are proactively establishing clear and bespoke regulatory frameworks to attract compliant and well-capitalized virtual asset businesses and position themselves as global hubs.
Both jurisdictions have introduced strict, prudentially-based rules to integrate stablecoins into their financial stability frameworks:
Singapore (MAS): Issuers of Single-Currency Stablecoins (SCS) pegged to the Singapore Dollar or any G10 currency, with circulating value exceeding SGD 5 million, must obtain a Major Payment Institution (MPI) License.
Hong Kong (HKMA): A license under the Stablecoins Ordinance is mandatory for all fiat-backed stablecoins pegged to the Hong Kong Dollar or issued within Hong Kong.
In both regions, stablecoins must be 100% backed by high-quality, liquid assets. In Hong Kong, there is the added requirement of segregation of reserves and maintaining a minimum paid-up capital of HK$25 million. Singapore does not specify a minimum capital requirement.
Singapore: Mandates that redemption requests must be fulfilled within five business days and restricts activities that pose additional risk, such as lending. Compliant stablecoins earn the right to use the “MAS-regulated Stablecoin” label, providing an assurance of trust.
Hong Kong: Grants token holders an absolute right to redemption at par value within one business day, and mandates the establishment of robust governance and risk management systems. Retail offering is restricted to licensed entities.
The approach of these two financial centers is to integrate crypto assets into their economies within a framework of financial stability and investor protection, rather than stifling them. By creating bespoke licensing regimes for stablecoin issuers, they provide businesses with a clear rulebook to follow. This strategy attracts high-quality institutional players and positions them as the preferred jurisdictions for legitimate digital asset businesses operating in Asia.
Turkey took a historic step in July 2024 by bringing crypto assets under a regulatory framework for the first time with an amendment to the Capital Markets Law (SPKn). While this new legislation introduces significant rules for intermediaries operating in the market, understanding the position of stablecoins within this framework is critically important.
The new legislation primarily delegates the authority to regulate and supervise Crypto Asset Service Providers (KVHS) (exchanges and custody institutions) to the Capital Markets Board (SPK).
Scope: The law provides a broad definition of "Crypto Asset" which undoubtedly includes stablecoins.
Licensing and Protection: KVHSs must comply with minimum capital requirements and robust corporate governance standards to obtain a license from the SPK.
Asset Custody Assurance: The regulation mandates the complete segregation of customer crypto assets from the KVHS’s own assets, and requires that a large portion of customer assets be held securely by SPK-authorized custody institutions, thereby enhancing investor protection.
Existing restrictions implemented by the Central Bank of the Republic of Türkiye (TCMB) remain in force:
Payment Ban: Under the TCMB’s 2021 regulation, the direct or indirect use of crypto assets for payments is prohibited.
Digital Turkish Lira: The TCMB is actively developing the Digital Turkish Lira project, a Central Bank Digital Currency (CBDC).
The most significant deficiency in the current Turkish legislation, setting it apart from global frameworks, is the lack of a specific licensing regime or rule set for stablecoin issuers.
This situation creates a structure where the "shops are regulated (exchanges)," but the "factories (issuers)" are not supervised. While the SPK oversees trading and custody on licensed exchanges, the reserve transparency and financial adequacy of foreign companies issuing major stablecoins in the market fall outside the direct purview of Turkish authorities.
To address this systemic risk, Turkish regulators are expected to launch a second wave of regulation in the near future, likely inspired by global models such as MiCA. These regulations will aim to:
Introduce a special licensing requirement for issuers operating in the Turkish market.
Mandate compliance with reserve management, transparency, and independent auditing standards.
Establish prudential oversight authority over the stablecoin market.
Uncollateralized algorithmic stablecoins, once seen as an innovative experiment in decentralized finance, have gone down in history as a dangerous example of financial engineering following the catastrophic 2022 collapse of TerraUSD (UST). This event led to a definitive consensus among global regulators regarding the model's future.
This pure algorithmic model, popularized in the Terra/Luna ecosystem, was built upon two tokens: the stablecoin (UST), which attempted to maintain a $1 peg, and the volatile governance token (LUNA).
The algorithm attempted to maintain the price peg through supply and demand by incentivizing users to mint UST by burning LUNA when the price was above $1, and mint LUNA by burning UST when the price was below $1.
The "Death Spiral"
Under severe market stress, the de-pegging of UST triggered the algorithmic minting of massive amounts of LUNA to stabilize the system. This hyperinflation caused LUNA's price to collapse, completely destroying confidence in the algorithmic "collateral" and creating a vicious cycle where both tokens spiraled to near zero value.
The failure of UST provoked a clear and decisive response from major regulatory frameworks like MiCA and the GENIUS Act:
De Facto Bans: New legislation in the EU and the US has effectively prohibited the issuance of new uncollateralized or endogenously collateralized algorithmic stablecoins.
Classification: Institutions like the European Central Bank have stated that such tokens should be treated not as a stable form of money, but as high-risk, uncollateralized crypto assets.
DAI is a stablecoin on the Ethereum blockchain that uses smart contracts designed to control supply to keep its value as close as possible to one U.S. Dollar.
There is a critical distinction between the failed seigniorage model of UST and decentralized, crypto-collateralized stablecoins like MakerDAO's Dai (DAI):
DAI is Not Uncollateralized: Unlike uncollateralized models, Dai is over-collateralized by external and diversified crypto assets locked in smart contracts.
Buffer Mechanism: Over-collateralization provides a significant safety buffer against volatility.
Governance Type: Dai is managed algorithmically rather than backed algorithmically; the system has liquidation mechanisms designed to protect the peg when collateral value drops.
Uncollateralized algorithmic stablecoins have no future in the regulated financial system. Over-collateralized models like DAI will likely be classified by regulators as high-risk ARTs (Asset-Referenced Tokens) and subjected to strict rules focusing on collateral quality, smart contract security, and governance.
Global stablecoin regulations are moving the market away from a caveat emptor environment towards a structured financial setting that includes coded rights and structured protections for users. Regulators are systematically addressing every vulnerability exposed in past crises by applying time-tested principles from banking and securities law to the digital asset space.
These protection mechanisms are built upon fundamental elements common across all major regulatory frameworks (MiCA, GENIUS Act, Hong Kong, Singapore, and Turkey’s KVHS rules):
Granting token holders a legally enforceable right to redeem their stablecoins from the issuer at par value (1:1), at any time, without delay or excessive fees.
Requiring issuers to publish an approved "white paper" that clearly details the operating mechanism, the composition of their reserves, redemption policies, and all associated risks. Misleading marketing is prohibited.
The mandatory legal segregation of reserve assets from the issuer's corporate funds. This ensures that in the event of the issuer's insolvency, token holders have a priority claim on the reserves.
Requiring issuers and service providers to implement robust Know Your Customer (KYC) and AML procedures to combat illicit financing and fraud.
Mandating that issuers and service providers meet high standards for technological security and operational resilience to protect user funds from cyberattacks, software bugs, and system failures.
The regulations directly address fundamental weaknesses, such as vague redemption rights and non-transparent reserves, aiming to ensure that a "digital dollar" offers the same fundamental protections as a dollar held in a regulated bank or e-money account.
ADDITIONAL NOTE: In Turkey, specific rules such as transaction reporting and withdrawal delays have been designed to combat illicit financing through KVHSs.
The implementation of comprehensive stablecoin regulations marks the end of the "Wild West" era for the sector, yet simultaneously signals a new beginning for mass adoption. Regulations will shift the direction of innovation away from high-risk experiments and towards building robust applications.
The new regulatory frameworks (MiCA, GENIUS Act) will bring about permanent changes in the market:
Flight to Quality and Consolidation: Issuers unable to meet the high cost of compliance will be marginalized. The market will consolidate around licensed, well-capitalized, and regulated players like Circle (USDC) and PayPal (PYUSD).
Bridge to Traditional Finance (TradFi): Regulatory clarity will "de-risk" stablecoins for institutional players. Banks and asset managers will increasingly use regulated stablecoins for purposes such as treasury management and instant settlement with greater confidence.
Regulations bring both stability and a pressure for compliance to Decentralized Finance (DeFi):
Increased Reliability: The influx of reliable and regulated stablecoins (USDC, EURC) into the ecosystem will increase the system's overall liquidity and stability.
Institutional Entry: A regulated foundational layer will encourage the entry of institutional capital for more sophisticated and programmable DeFi products.
Compliance Obligation: Protocols integrated with non-compliant stablecoins will feel significant pressure to change in order to maintain access to regulated on/off-ramps (exchanges).
Unregulated Area: While existing laws like MiCA target centralized issuers, DeFi protocols will be the focus of the next wave of regulation (proposed by institutions like the IMF).
The ultimate effect of regulation is not to kill innovation but to re-direct it. A fundamental trade-off is required: sacrificing the "permissionless" ethos of early crypto in exchange for the trust and stability necessary for mass adoption.
The DeFi ecosystem will likely bifurcate:
Integrated Segment: The portion that uses regulated stablecoins, serves institutional clients, and becomes integrated with traditional finance.
Experimental Segment: A smaller portion that remains fully decentralized and experimental but will be cut off from primary regulated liquidity on-ramps.
The global analysis clearly demonstrates a paradigm shift where the world's leading financial centers are committed to quickly implementing prudentially-based and comprehensive regulations (MiCA, GENIUS Act) due to the critical importance of stablecoins for financial stability. These frameworks, built upon pillars like reserve quality, transparency, and the right to redemption, have made compliance no longer an option, but a mandatory requirement. While Turkey took an important first step with the 2024 law regulating KVHSs, the failure to regulate issuers leaves a critical gap compared to global best practices.
Turkish financial ecosystem participants (KVHSs, banks, and stablecoin users) must proactively prepare for the inevitable second phase of regulation:
Prioritize working with stablecoins that adhere to the highest standards of issuer transparency and reserve quality, and are globally supervised (e.g., MiCA/GENIUS compliant).
It is crucial for KVHSs and potential stablecoin issuers in Turkey to align their operational and corporate governance standards now with the reserve and transparency rules required by frameworks like MiCA/GENIUS.
The industry needs to engage in active dialogue with the SPK and TCMB in the formation of the future local stablecoin issuer licensing regime (a local MiCA) and position itself to gain a competitive advantage in this newly regulated market.
The digital asset markets and stablecoin regulations represent a rapidly evolving and complex legal field. In this dynamic environment, navigating with the right strategies and minimizing legal risks is vital for both individual investors and institutional players.
Our expert team guides clients through compliance processes and offers strategic consulting services by tracking global and local regulatory developments. Proactively preparing for the regulatory gaps in Turkey and the anticipated second wave of regulation is a critical step toward gaining a competitive advantage and protection from potential risks.
If you seek more information on the legal dimensions of stablecoins and other crypto assets, need help managing your compliance processes, or require strategic legal consulting for specific situations, do not hesitate to contact our expert team.
Discover how Zero-Knowledge Proof offers next-gen solutions for Turkish banking, addressing KVKK and BDDK compliance with data privacy.
Contact Us for Expert Legal Consulting
