Enterprise AI Analysis
On the Necessity of Stablecoins and the Legal Mechanisms for Their Regulation
Jiahuan Yan • Peking University • Published: 17 September 2025
This paper explores the necessity of stablecoins and the legal mechanisms required for their effective regulation. It begins by classifying stablecoins into three primary types—fiat-collateralized, crypto-collateralized, and algorithmic—and examines the technical foundations that support their functionality, along with the preconditions necessary for achieving price stability. The discussion then turns to the growing importance of stablecoins, particularly in enhancing the efficiency and global competitiveness of China's cross-border e-commerce sector. However, the rapid development of stablecoins also brings a range of legal and regulatory challenges, including distinct legal risks associated with each type, the lack of a coherent regulatory framework for financial innovation, potential run risks, vulnerabilities to money laundering, and significant privacy concerns. In response, the paper underscores the urgent need for a robust and adaptive legal oversight system. It draws on global regulatory practices to propose a comprehensive legal framework that includes the development of innovation-sensitive regulatory structures, mechanisms to mitigate run risks, the establishment of a strong anti-money laundering regime, and a thorough privacy protection system. By integrating technical, economic, and legal perspectives, this study aims to support the development of a stablecoin regulatory framework that promotes financial innovation while ensuring systemic security and regulatory integrity.
Executive Impact & Strategic Imperatives
Stablecoins are poised to redefine global finance, offering unparalleled price stability and efficiency compared to traditional cryptocurrencies. Their ability to tokenize real-world assets and facilitate cost-effective cross-border transactions, particularly for sectors like China's e-commerce, marks a significant leap forward in financial innovation.
However, this transformative potential is tethered to robust legal and regulatory frameworks. Without comprehensive oversight addressing inherent risks like runs, money laundering, and privacy concerns across various stablecoin types, their long-term viability and systemic benefits remain vulnerable. Proactive, innovation-sensitive regulation is crucial to unlock their full economic potential while safeguarding financial integrity.
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Average potential cost reduction in cross-border transactions using stablecoins.
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Stablecoin peg accuracy rate compared to fiat (hypothetical).
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Percentage of global jurisdictions developing comprehensive stablecoin regulations.
Deep Analysis & Enterprise Applications
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Stablecoin Types: Mechanism, Stability, and Legal Risks
A comparative overview of fiat-collateralized, crypto-collateralized, and algorithmic stablecoins, highlighting their underlying mechanisms, price stability characteristics, and specific legal vulnerabilities.
| Type | Collateral Mechanism | Stability Characteristics | Primary Legal Risk |
|---|---|---|---|
| Fiat-Collateralized | Pegged to fiat currency, Backed 1:1 by fiat reserves. | Relatively low decentralization. Most common (USDT, USDC). | Transmissible redemption risk from fiat currencies. |
| Crypto-Collateralized | Pegged to crypto assets, Over-collateralized (e.g., DAI). | Vulnerable to collateral value fluctuations. | Liquidation process risks due to volatile crypto assets. |
| Algorithmic | Achieves stability via algorithmic mechanisms (mint/burn), No physical collateral. | High decentralization. Prone to collapse if algorithm fails (e.g., TerraUSD). | Absence of asset-backed foundation, undermining trust and stability. Potential for shadow banking/unlicensed credit if treated as deposits. |
Ensuring Stablecoin Stability: Key Prerequisites
For stablecoins to maintain their intended price stability and proper function, several foundational elements must be in place.
Robust Blockchain Infrastructure
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Adequate Asset Reserves
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High Market Liquidity
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Effective Risk Management
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Transparent Trust Mechanism
Stablecoins in China's Cross-Border E-commerce
Stablecoins offer significant advantages for cross-border payments in China, addressing issues like high transaction costs compared to existing third-party platforms.
60%+ Potential reduction in cross-border transaction costs (estimated).Addressing Regulatory Gaps in Stablecoin Oversight
The rapid evolution of stablecoins has outpaced existing regulatory frameworks, leading to significant challenges in ensuring systemic stability, preventing illicit activities, and protecting user privacy.
- Systematic Regulatory Gaps: A lack of a comprehensive framework for financial innovation.
- Run Risks: Susceptibility to collapse due to insufficient reserves or amplified by arbitrage mechanisms.
- Money Laundering Vulnerability: High risk of illicit use due to stability and value-preserving characteristics.
- Privacy Concerns: Transparency of blockchain transactions poses significant personal privacy risks.
- Strategic Response: Urgent need for innovation-sensitive regulatory structures, mechanisms to mitigate run risks, robust AML, and strong privacy protection.
Calculate Your Potential Impact
Estimate the operational efficiencies and cost savings your enterprise could achieve by strategically integrating well-regulated stablecoin solutions and AI-driven compliance.
Annual Cost Savings
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Hours Reclaimed Annually
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Implementation Roadmap for Stablecoin Integration
A phased approach to integrate stablecoins and implement a robust regulatory compliance framework within your enterprise, ensuring secure and efficient operations.
Phase 1: Foundational Assessment & Framework Development (0-6 Months)
Conduct thorough impact assessments of stablecoins; develop innovation-sensitive regulatory sandbox frameworks; implement ex-ante stress testing for resilience.
Phase 2: Core Regulatory Implementation & Oversight (6-18 Months)
Establish clear licensing regimes for issuers; mandate full reserve backing and transparent reporting; introduce robust AML/CFT measures (e.g., 'travel rule'); begin phased implementation of privacy protection (data anonymization).
Phase 3: Global Harmonization & Adaptive Governance (18-36+ Months)
Foster international cooperation for cross-jurisdictional consistency; continuously monitor market developments and adapt regulations; integrate stablecoin systems with existing digital identity frameworks for enhanced security and privacy.
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