Stablecoins Face Threefold Challenges: U.S. Regulatory Battles, China's Ban, and Europe's Encirclement

Entering Q2 2026, the stablecoin industry is experiencing an unprecedented regulatory storm. From legislative battles in Washington to a ban in Beijing, and compliance encirclement in Brussels—this $320 billion market is being pressured from three directions simultaneously.

United States: Internal Divisions Under Yield Restrictions

The U.S. CLARITY Act has stalled over disputes regarding "stablecoin yields." The core disagreement centers on whether dollar-pegged stablecoins should focus solely on payment and settlement functions or also possess deposit-like financial attributes.

The banking sector takes a hard stance. A survey by the American Bankers Association shows that when asked whether allowing stablecoin yields could reduce bank lending funds, respondents supported banning stablecoin yields by a 3:1 ratio. Standard Chartered estimated in January that by the end of 2028, stablecoins could withdraw about $500 billion in deposits from the U.S. banking system, with small and medium-sized banks bearing the greatest pressure.

Coinbase Chief Legal Officer Paul Grewal countered, stating there is no current evidence of deposit outflows, and warned that restricting stablecoin yields could stifle American innovation and harm consumer interests.

Meanwhile, Federal Reserve Vice Chair Michael Barr issued a stern warning, arguing that stablecoin structures pose vulnerabilities to financial stability. He compared stablecoin risks to the bank runs of the 1800s during America’s Free Banking Era—when the lack of secure private currencies frequently triggered financial panics, ultimately leading to the creation of the Federal Reserve. Barr emphasized that stablecoin issuers have incentives to assume as much risk as possible within market tolerance to maximize profits, which could undermine confidence during market stress. The core tool of the GENIUS Act is to limit permissible reserve assets to a list of high-quality, highly liquid assets, but success depends on the details of regulatory implementation.

China: Eight Departments Jointly Target the Renminbi Stablecoin

On February 6, 2026, China’s People’s Bank, Securities Regulatory Commission, and six other departments jointly issued the "Notice on Further Preventing and Disposing of Risks Related to Virtual Currencies," explicitly mentioning "stablecoins" for the first time in a national-level document, establishing two key red lines:

First, without approval from relevant authorities, domestic entities and their controlled overseas entities are prohibited from issuing virtual currencies abroad. Second, stablecoins pegged to the Renminbi involve monetary sovereignty; no domestic or foreign entities are allowed to issue stablecoins pegged to the Renminbi outside China. This means any project attempting to issue CNY-pegged stablecoins, regardless of registration location, will face direct scrutiny from Chinese regulators.

This ban has directly impacted cross-border compliance for Hong Kong stablecoin issuers. Hong Kong’s "Stablecoin Regulations," which came into effect on August 1, 2025, are the first regulatory legislation in Asia targeting fiat-backed stablecoins, providing a clear pathway for institutional issuance of HKD stablecoins. However, licensed issuers with mainland ties face a compliance dilemma: they must navigate Hong Kong’s encouraging innovation environment while adhering to mainland’s strict prohibitions, creating a "dual-rule" oversight challenge.

Europe: MiCA Implementation and Strategic Response with Digital Euro

Under the EU’s MiCA framework, stablecoin provisions will be enforced starting June 30, 2026. Euro stablecoins deemed "systemically important" will be required to hold 60% of their reserves in bank deposits, significantly increasing issuance costs.

More notably, the EU’s Digital Wallet (EUDI Wallet) will exclude stablecoins and DeFi, launching in all 27 member states in 2026, supporting only traditional financial channels for payments. Simultaneously, the European Commission is proposing to centralize all crypto regulation authority within the European Securities and Markets Authority (ESMA), replacing the originally decentralized MiCA model led by national regulators. Industry warns this could disrupt MiCA’s rollout and create legal uncertainties. The digital euro project is also progressing steadily, positioned as Europe’s strategic response to private digital currencies and global payment competition.

Market Reactions Amid Three-Party Battles

On April 2, the U.S. Department of the Treasury released a proposal assessing whether state-level stablecoin regulations are "substantially similar" to federal standards, granting some flexibility to state regulators but emphasizing that state systems must not significantly narrow or restrict unified standards, such as anti-money laundering and sanctions requirements. The Office of the Comptroller of the Currency (OCC) must issue final rules for the GENIUS Act by July 18, 2026, with the law fully taking effect on January 18, 2027.

However, with midterm elections approaching, if legislation cannot make progress between late April and early May, it may be postponed until 2027 due to election schedules.

Industry Impact

Under regulatory encirclement from the world’s three largest economies, the stablecoin industry is shifting from "wild growth" to "compliance layering." Regulatory differences across regions are reshaping the industry landscape: U.S. disagreements over yields may slow domestic innovation; China’s comprehensive ban centered on monetary sovereignty imposes fundamental constraints on stablecoin development; Europe aims to achieve "internal control" through strict capital requirements and the digital euro strategy. For industry players, cross-border compliance capabilities will become the next core competitive advantage.

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