Stablecoins and FX: key research, regulatory updates, and final takeaways (Part 3)

Mirela Ciobanu, Lead Editor at The Paypers, explores real-world stablecoin initiatives, including Project Mariana and Warwick research, to illustrate their operational potential and impact on financial transactions.

This section presents some lessons for designing stablecoins that the payments industry has learned while experimenting with them. It also summarises regulatory implications involved in stablecoin issuance and adoption, addresses some fraud and security issues, and shares our conclusions. For those interested in learning how stablecoins disrupt FX and stable terminology, we recommend reading Part 1 and Part 2 of this series.

Project Mariana – AMMs disrupting cross-border FX

Project Mariana, led by the BIS Innovation Hub in collaboration with the Bank of France, the Monetary Authority of Singapore, and the Swiss National Bank, investigates how wholesale central bank digital currencies (wCBDCs) combined with automated market makers (AMMs) could transform cross-border FX trading and settlement. The project’s proof of concept tested FX transactions using wCBDCs issued across borders via a shared network, with trades executed automatically through an AMM.

Key findings include:

• Instant settlement: Trades can be executed and settled without intermediaries.
• Transparency: AMMs provide clear visibility into liquidity and pricing.
• Liquidity and price efficiency: AMM features ensured trades remained efficient, even with automated execution.

Challenges identified include the need for pre-funded liquidity, continuous operational availability, and the integration of AMMs into existing financial infrastructure. Overall, Mariana demonstrates the viability of AMMs and wCBDCs as foundations for more efficient, tokenized FX markets.

Wholesale CBDCs (wCBDCs) and stablecoins may seem like competing concepts, but they are deeply connected. Both are digital settlement assets aimed at making payments faster, cheaper, and programmable. Stablecoins are already live on public blockchains, powering retail transactions, remittances, and liquidity in crypto markets. Meanwhile, wCBDCs are being designed by central banks for secure, large-value interbank and cross-border settlements. In practice, the two could complement each other: wCBDCs anchoring institutional transactions within regulated financial networks, and stablecoins bridging retail and DeFi activity across open networks. Together, they could reshape FX and payments by creating a more efficient, programmable, and interconnected global system.

Warwick Business School Research – stablecoins on DEXs

A study by Warwick Business School, in collaboration with Angelo Ranaldo (University of Basel) and Junxuan Wang (University of Cambridge), examined whether blockchain-based stablecoins pegged to traditional currencies could support FX trading on DEXs. They analysed trade and price data for Circle’s Euro (EURC) and US Dollar (USDC) stablecoins on Uniswap V3, a DEX utilising AMM technology.

Key insights:

• Price alignment: EURC/USDC rates closely tracked traditional EUR/USD FX rates, with deviations within 0.2%. Markets responded efficiently to macroeconomic news, including US interest rate decisions.
• Transaction costs: Ethereum's gas fees create friction, particularly for small trades, adding to effective trading costs.
• Blockchain volatility: Since gas fees are paid in ETH, sudden ETH price swings can impact otherwise risk-free stablecoin trades.
• Information asymmetry: Order flow in blockchain markets can predict movements in traditional FX, suggesting uneven access to information, similar to conventional FX markets.

The study highlights both the potential of blockchain markets to complement traditional FX infrastructure and the frictions that must be addressed for large-scale adoption.

Stablecoins beyond DEXs

While DEXs like Uniswap illustrate decentralised trading, stablecoins are also integrated into centralised exchanges (CEXs) and specialised settlement platforms:

• CEXs: Binance, Coinbase, Kraken, and Bitstamp support pairs like USDC/EURC and USDT/GBP using traditional order book mechanisms. Large-scale trades often rely on over-the-counter (OTC) desks for liquidity.
• Payment/settlement platforms: Fireblocks, Circle, and Ripple leverage stablecoins to streamline cross-border payments, sometimes bypassing SWIFT entirely.

These developments show that stablecoins are emerging as versatile instruments across FX-like infrastructure, offering speed, transparency, and efficiency.

Regulatory and risk considerations

Before concluding stablecoins’ potential to disrupt FX markets, it is important to recognise that technological innovation alone is not sufficient. Regulatory frameworks, fraud prevention, and operational safeguards play a central role in determining whether stablecoins can be safely and widely adopted. Initiatives like the EU’s MiCA framework and the US GENIUS Act represent early attempts to clarify rules for issuers and protect users, although their scopes and approaches differ. While MiCA covers a broad set of crypto-assets and emphasises cross-border harmonisation, the GENIUS Act focuses primarily on USD-backed stablecoins within the US regulatory system. Regardless of the differences, these developments underscore that stablecoins must operate within regulatory boundaries and implement measures to mitigate fraud, ensure reserve transparency, and protect market participants.

Stable growth, unstable rules

Despite these regulatory steps in the EU and the US, the global landscape remains fragmented. A recent Chainalysis analysis of 25 major crypto markets reveals that only 20% have implemented comprehensive frameworks covering financial integrity, consumer protection, and market abuse. While AML/CFT rules are the most common, adopted in 18 jurisdictions representing 58% of global activity, they still leave room for regulatory arbitrage. Consumer protection measures vary widely, with 40% of jurisdictions limiting them to advertising and marketing restrictions, and only nine countries, representing 21% of the market, have clear rules to prevent market manipulation.

Moreover, stablecoins still lack fraud and chargeback protections comparable to traditional payment systems. Transactions are irreversible and behave as bearer instruments, meaning broader retail adoption will require both legislative and technical innovations to improve user protection and dispute resolution. These gaps highlight the urgent need for more coordinated and consistent regulation to support the safe and scalable growth of crypto globally, complementing the technological progress already demonstrated.

In conclusion

Stablecoins are rapidly gaining traction as a tokenized form of currency that facilitates financial transactions on blockchains. They serve as a bridge between traditional finance and blockchain technology, enabling direct, near-instant transaction settlements and reducing reliance on intermediaries.

Stablecoins are already being used across a variety of sectors, particularly in cross-border payments and remittances (where average fees are around 6.35% and settlements can occur in minutes rather than days. This has the potential to benefit approximately 800 million people.) Another notable application is humanitarian aid, as seen in the UNHCR’s efforts in Ukraine, demonstrating the versatility and impact of stablecoins. Additional use cases include merchant payments, acting as stable stores of value, and improving capital market settlement processes.

To ensure their stability and effectiveness, stablecoins must incorporate certain design elements, including strong banking integration, high-quality reserves, and operational transparency. Efficient minting and redemption require close links with banking systems. Reserves should be composed of cash and short-term government securities and should at least match the value of stablecoins in circulation.
In the event of an issuer's bankruptcy, it is essential that users can access their holdings without delay. Regulators should require that reserves be held in segregated accounts dedicated to the benefit of token holders.

Given the possibility of blockchain outages, issuers must also allocate capital to manage technology risks and ensure redundancy across multiple blockchains to improve resilience.

Limitations and broader FX impact

In the short term, stablecoins are well-positioned to disrupt FX markets, particularly for retail use cases like remittances. However, their potential for large-scale B2B cross-border payments remains more limited. These transactions typically require significant liquidity and robust settlement infrastructure, which stablecoins alone may not yet fully support. Additional challenges include the fragmented and incomplete regulatory landscape across jurisdictions and the unresolved implications that widespread stablecoin use may have on national monetary sovereignty.

Stablecoins continue a long history of financial innovation, but their journey is far from complete. What’s needed now is decisive, coordinated action from both policymakers and the private sector to mitigate risks and support their transformative promise in modernising the global financial system.

About author

Mirela Ciobanu is Lead Editor at The Paypers, specialising in the Banking and Fintech domain. With a keen eye for industry trends, she is constantly on the lookout for the latest developments in digital assets, regtech, payment innovation, and fraud prevention. Mirela is particularly passionate about crypto, blockchain, DeFi, and fincrime investigations, and is a strong advocate for online data privacy and protection. As a skilled writer, Mirela strives to deliver accurate and informative insights to her readers, always in pursuit of the most compelling version of the truth. Connect with Mirela on LinkedIn or reach out via email at mirelac@thepaypers.com.