Global stablecoin regulatory competition: the United States, the European Union, and Hong Kong are taking different paths. Who will dominate the future of digital finance?

As digital currencies play an increasingly important role in the global financial system, stablecoins serve as a bridge connecting traditional fiat and the encryption world, making the establishment of their regulatory framework a top priority for governments around the world. However, major global financial centers have adopted vastly different approaches to managing stablecoins, resulting in an unprecedented divide. The United States implements a "Compliance-first" framework, the European Union enforces "embedded regulation," and Hong Kong is exploring a "technology-neutral" structure. This regulatory divergence is not merely a matter of preference; it represents a fundamental struggle for dominance in digital financial hegemony. Each jurisdiction is betting on its unique strategy, hoping to attract more innovation, investment, and market share in this trillion-dollar stablecoin ecosystem that has developed. Today's regulatory decisions will determine which financial centers will dominate the future digital economy.

1. United States: Compliance-First "GENIUS Act"

The United States has adopted a unique American approach to stablecoin regulation through the passage of the GENIUS Act, which was approved by the Senate with 66 votes in favor in May 2025. The Act establishes a dual regulatory framework at both the federal and state levels, placing compliance certainty above all other considerations, reflecting America's preference for clear rules and stringent enforcement mechanisms.

According to the GENIUS framework, only authorized payment stablecoin issuers can legally operate in the market, and unauthorized issuance will constitute a federal crime. The legislation establishes a clear hierarchy, wherein federal regulatory agencies are responsible for overseeing large issuers with a market capitalization exceeding $10 billion, while state regulatory agencies are responsible for overseeing smaller issuers, whose regulatory frameworks must be "substantially similar" to federal requirements.

The compliance-first approach goes beyond simple licensing requirements. Stablecoin issuers must hold full reserves backing in USD or US Treasury bonds, undergo regular audits, and comply with comprehensive reporting requirements. The legislation clearly states that payment stablecoins are neither securities nor commodities, thereby eliminating the regulatory ambiguity that has plagued the industry for years. What sets the US approach apart is its emphasis on consumer protection and financial stability, rather than fostering innovation. This conservative stance reflects the tendency of US regulators to prefer stability over experimentation, especially after the previous turmoil in the cryptocurrency market.

2. European Union: Embedded Regulation of the MiCA Regulation

The EU has taken a distinctly different approach through its regulation of the crypto asset market (MiCA), which will come into full effect in December 2024. The EU has not created a separate regulatory framework for stablecoins, but has instead integrated digital asset regulation into its existing financial services framework, leveraging decades of unified banking and securities regulatory systems.

The embedded method categorizes stablecoins into two different types: asset-referenced tokens and electronic money tokens. This classification system allows regulators to apply different requirements based on the underlying asset structure instead of creating a one-size-fits-all rule. When asset-referenced tokens achieve "significant" status (defined as having more than 10 million token holders or a daily trading volume exceeding 1 billion euros), they will face more stringent requirements.

Europe's approach has demonstrated its execution capability. Major exchanges, including Binance, Coinbase, and Kraken, have delisted non-compliant stablecoins like USDT from the EU market, forcing issuers to either comply with regulations or completely exit the European market. This proactive enforcement action clearly indicates the EU's commitment to its regulatory vision. Furthermore, the EU's embedded regulatory strategy goes beyond simple compliance requirements, encompassing broader policy objectives, including financial stability, consumer protection, and market integrity. European authorities have stated that stablecoin regulation serves as a testing ground for broader digital financial governance and hinted that its lessons learned will influence future global encryption asset regulation.

3. Hong Kong: A Technologically Neutral and Flexible Framework

Hong Kong has positioned itself as the most innovation-friendly jurisdiction through its Stablecoin Regulation, which was passed by the Legislative Council in May 2025. Hong Kong's "technology-neutral" approach focuses on outcomes rather than specific technical implementations, providing flexibility for issuers while maintaining regulatory oversight.

The Hong Kong framework introduces the concept of "designated stablecoins," referring to the official currencies or economic units designated by the Hong Kong Monetary Authority. This flexible definition allows for innovation while ensuring regulatory control over systemically important tokens. It is worth noting that the regulation applies to stablecoins issued in Hong Kong as well as those pegged to the Hong Kong dollar, regardless of their place of issuance.

Hong Kong's regulatory sandbox has become a key advantage in attracting international participants. The first batch of sandbox participants includes large institutions such as Standard Chartered Bank and HKT, as well as technology companies like JD Digits and Circular Creative Technology. This diverse group reflects Hong Kong's strategy of balancing traditional financial institutions with financial technology innovators. The principle of technological neutrality also extends to technical requirements. Hong Kong regulators do not specify particular technologies or operational models but focus on outcomes such as asset backing, redemption mechanisms, and consumer protection. This flexibility allows issuers to innovate within clear parameters while ensuring compliance with regulatory objectives.

IV. Competitive Impact and Market Dynamics: Reshaping the Global Stablecoin Landscape

The regulatory differences between these three major jurisdictions have created significant competitive pressure and market fragmentation. Each regulatory approach has its own advantages and disadvantages for different types of market participants, leading stablecoin issuers and users to make strategic choices between jurisdictions.

The U.S. Compliance-First model offers the greatest degree of regulatory certainty, making it attractive to risk-averse institutional investors and traditional financial institutions. However, stringent requirements and high compliance costs may hinder smaller innovators and experimental projects. Major issuing institutions like Circle have publicly praised the GENIUS Act, believing that clear regulations provide a competitive advantage over their rivals with weaker regulations.

In contrast, the EU's embedded approach fully leverages existing regulatory infrastructure while providing comprehensive consumer protection. The classification system allows for proportional regulation, which could lower the threshold for small issuers while maintaining strict oversight of systemically important tokens. However, strong enforcement against non-compliant tokens poses implementation challenges for global issuers.

Hong Kong's technology-neutral framework provides maximum flexibility for innovation while maintaining robust regulation. The sandbox model allows for experimentation before full regulatory implementation, potentially attracting cutting-edge projects that may struggle under more regulated frameworks in other regions. However, there are still questions about how this model will be promoted and whether its flexibility will compromise consumer protection.

V. Global Impact and Future Integration: The Formation of a Multipolar Structure

The differences in stablecoin regulation between the United States, the European Union, and Hong Kong reflect a broader competition among countries for digital financial leadership in an increasingly multipolar world. Each jurisdiction is betting on its own approach, believing it can most effectively balance innovation, stability, and consumer protection while attracting global market share.

This regulatory competition has begun to reshape the global stablecoin market. Although Tether's USDT is the largest stablecoin by market capitalization, it faces restrictions in the EU market due to compliance issues. Meanwhile, compliant stablecoins like Circle's USDC are gaining market share within regulated jurisdictions, illustrating how regulatory frameworks directly affect the competitive landscape.

The current fragmentation also poses challenges for global financial institutions and multinational stablecoin issuers, as they must simultaneously address multiple regulatory frameworks. When issuers are required to meet different requirements from various jurisdictions, compliance costs and operational complexity can increase significantly, which may favor larger institutions that are able to bear cross-jurisdiction compliance programs.

Looking to the future, the success of each regulatory approach may depend on market outcomes in the coming years. Indicators such as innovation rates, consumer adoption rates, financial stability, and market share growth will determine which framework is most effective. However, given the fundamental ideological differences behind each approach, significant convergence is unlikely in the short term. Instead, the global stablecoin landscape may continue to evolve into a multipolar structure, with different regulatory models coexisting and competing for market participants. This competition could ultimately benefit a broader digital finance ecosystem as it encourages regulatory innovation and provides choices for different types of market participants, although it may also increase the complexity and fragmentation of the global digital currency market.

Conclusion:

The global stablecoin regulatory competition is unfolding at an unprecedented pace, with the United States, the European Union, and the Hong Kong region each taking different paths in an attempt to seize opportunities in the digital finance era. This competition will not only reshape the landscape of the stablecoin market but also have far-reaching effects on the global financial system. As the regulatory frameworks of various countries gradually improve, stablecoins are expected to play a more critical role in the future, providing more efficient and convenient digital financial services for the global economy.