Since the general downturn in the cryptocurrency market in 2022, stablecoins—crypto tokens pegged to a fiat asset like the US dollar—have steadily taken over more of the cryptocurrency market. Investors have been drawn to the relative stability of stablecoin and the absence of wild price swings that occur with traditional cryptocurrency like Bitcoin. 

At the Money 20/20 Europe conference this year in Amsterdam, Trade Finance Global (TFG) spoke to Shane Riedel, founder and CEO of Elucidate, which provides regulatory, compliance, and risk assessment services to the financial industry. “What’s interesting is that they bring together the programmability and the flexibility, agility of crypto together with the stability of fiat currencies,” explained Riedel.

Tether, the largest stablecoin (it’s tied to the US dollar), is now the third-largest cryptocurrency overall, reaching a market capitalisation of about $156 billion in June 2025. Tether alone accounts for nearly two-thirds of the stablecoin market, which had climbed to about $237 billion in May 2025.

Although stablecoin’s market cap makes up only about 15% of the crypto market today, this represents a more than doubling from its 7% market share in 2021. 

With stablecoin’s rapid growth and more widespread usage, investors may be naturally concerned about the regulatory environment around the stablecoin and the risk infrastructure

to support it. Riedel elaborated on the risks he sees in adopting stablecoin.

Fragmented regulation remains a concern

Riedel highlighted the fragmented regulatory environment for stablecoin, with regulators from different countries and regions taking fundamentally different views on its role in their economies. Because of the inherent lack of transparency in how crypto works, stablecoin—despite being more algorithmically stable—is still based on a “confidence game” that can quickly collapse if trust in the underlying asset vanishes.

This happened in 2022 with TerraUSD, a stablecoin tied to the US dollar through a convoluted trading mechanism with its own crypto token called Luna. When the macroeconomic environment was hit by rising interest rates and declining stock market values, the crypto market was hit even harder and selling pressure mounted on Luna, which lacked the reserves to maintain its value. The collapse of Luna quickly led to the collapse of TerraUSD and the entire blockchain, causing an estimated $45 billion in losses for their investors.

The failure of TerraUSD led many crypto investors and regulators to consider whether stablecoin was a viable and “stable” alternative to more volatile crypto tokens. Riedel pointed out, however, that TerraUSD was a somewhat unusual case with its convoluted mechanism tying the token to the US dollar and its relatively small size in the crypto market. Binance, a stablecoin with many more resources (still the second-largest stablecoin, with a market cap of about $90 billion), was able to survive the same economic headwinds and crypto market turbulence.

“What Binance shows us is how important it is to build in risk infrastructure as part of the product… It cannot be responsive or reactive to challenges that come up subsequently,” said Riedel: the importance of acting proactively.

The continued growth of stablecoin and its capture of an ever-larger share of the crypto pie would seem to answer the question of stablecoin’s viability.

Legacy infrastructure hinders compliance

Stablecoin, like its unpegged crypto cousins, is subject to an increasingly complex compliance regime that includes financial sanctions and anti-money-laundering (AML) measures on an ever-growing number of targets. As Riedel mentioned, compliance became much more complicated when, in the years immediately following the 9/11 terrorist attacks, the US greatly expanded financial sanctions on terrorist leaders and organisations threatening the US and its allies.

Since then, the job of the Office of Foreign Assets Control (OFAC), the branch of the US Treasury Department responsible for enforcing financial and economic sanctions, has become much bigger. It’s been charged with freezing the US dollar assets of Iranian and North Korean leaders, disrupting the financing of narcotraffickers, and, more recently, Russian leaders and companies that have had a role in Russia’s invasion of Ukraine. As a result, stablecoins, the largest of which are tied to the US dollar, face an ever-more complicated compliance framework.

“The legacy infrastructure that we’ve built over the last, say, 25, 30 years to manage risk and payments, I’m not sure that it ever properly worked, but it definitely doesn’t work or doesn’t allow for plug and play with stablecoins,” said Riedel.

This argument has been flipped on its head with the recent news on the passing of the Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act. This recognises stablecoins as an emergent infrastructure in cross-border payments, not just a speculative instrument, alleviating the uncertainty that an absence of a clear regulatory framework may create.

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“We’re at an inflexion point,” Riedel observed. “The entities that can move fast are the ones who will win. What’s critical is that, as part of that development process, risk infrastructure [is being built] into the product.” Preemptiveness rather than retrofitting compliance measures is crucial as stablecoins gain momentum.