Stablecoins are being squeezed into a narrower box: Singapore wants tighter guardrails, Japan wants tax rules that fit payment tokens, and the Bank for International Settlements is once again arguing they are not the right foundation for digital money.
- Singapore: proposed an interest ban and stronger safeguards
- Japan: sought lighter tax filing rules for trust-type stablecoins
- BIS: says stablecoins still fail basic money properties
The real fight is not over whether stablecoins are useful. They are. The bigger question is whether they should be treated as payment rails, bank-like liabilities, or a financial sidecar that keeps dragging regulators back into the same old mess.
On August 28, BIS General Manager Pablo Hernández de Cos used a speech at the Jackson Hole symposium in Wyoming, organized by the Federal Reserve Bank of Kansas City, to renew the institution’s case against stablecoins. His argument was blunt: stablecoins do not provide the three things money needs to work properly at scale, singleness, interoperability, and financial integrity.
Singleness means one unit of money should be accepted at face value everywhere in the currency area, not trade at a discount in one venue and a premium in another. Interoperability means the asset should move cleanly across systems. Financial integrity means the system can still monitor abuse instead of letting illicit activity hide behind a wallet and a slogan.
The BIS’s preferred alternative is tokenized deposits, bank deposits represented on a blockchain or similar ledger. De Cos said they offer a better way to use tokenization while keeping the banking system’s core structure intact.
That is a very BIS answer: keep the shiny rails, preserve the old plumbing, and do not hand monetary control to privately issued tokens that behave like money only when everything is calm.
The BIS also warned that if stablecoins were adopted more broadly, they could pull funding away from banks, raise banks’ funding costs, and expose issuers to run risk. Run risk is exactly what it sounds like: the danger that holders all try to redeem at once, forcing the issuer to scramble for liquidity.
Crypto history has already shown how ugly that can get. Once confidence cracks, “fully backed” can turn into “please hold” faster than anyone wants to admit.
Paolo Ardoino, CEO of Tether, the company behind USDT, the world’s largest stablecoin by market cap, pushed back on X on August 30. His response was part defense, part attack on the banking system that the BIS is so eager to protect.
“BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes, ”
“Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?”
“What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class?”
Ardoino also described tokenized bank deposits as “pinky swear uninsured bank deposits (usually only 10% reserved by liquid assets).” That is not a neutral description. It is a Tether pitch wrapped in a barbed wire fence.
His core claim is simple: stablecoins, in his telling, are fully reserved by liquid assets such as Treasuries, while banks are fractional reserve institutions that rely on a thinner liquidity cushion. That argument lands with crypto users because it hits the oldest frustration in finance: trust in institutions that promise safety while operating on leverage and confidence.
Still, “fully reserved” should be treated as a company claim, not a universal truth for every stablecoin in circulation. Reserve quality, redemption terms, and issuer behavior matter. A lot.
That is also why regulators keep circling the same issue: when a payment token starts paying yield, it stops looking like plain old payments infrastructure and starts looking a lot like a deposit product or investment product in disguise.
In the United States, the policy direction has already tilted against that kind of product design. The GENIUS Act, passed last July, explicitly prohibited issuers from paying interest or yield, in cash, tokens, or other consideration, solely for holding, using, or retaining a payment stablecoin.
Singapore is moving in the same direction, but with its own style. On September 1, the Monetary Authority of Singapore proposed legislative amendments to implement a stronger stablecoin framework, including a ban on paying interest on MAS-regulated stablecoins.
That framework was finalized in August 2023 and applies to single-currency stablecoins issued in Singapore and pegged to the Singapore dollar or a G10 currency. Under the current regime, issuers must obtain a MAS license, maintain reserve assets sufficient to cover outstanding tokens, meet capital and liquidity requirements, provide timely redemptions, and publish disclosures on reserves and audits.
The new proposals would add stress testing, recovery plans, and orderly wind-down plans. In plain English: if you want to issue money-like tokens in Singapore, you need to act less like a crypto casino and more like a regulated financial utility.
Ho Hern Shin, MAS Deputy Managing Director for Financial Supervision, framed it as a balance between innovation and control:
“MAS’ proposed legislative amendments will give effect to a stablecoin framework that promotes responsible financial innovation, ”
“Trusted and well-regulated stablecoins can serve as a credible settlement asset in tokenised financial markets, while mitigating risks to users and the broader financial system.”
That is the part people miss when they lazily label Singapore “pro-crypto” or “anti-crypto.” MAS is not trying to kill stablecoins. It is trying to separate serious settlement assets from the endless swamp of yield-chasing nonsense that has burned so many users already.
Singapore’s proposal also allows stablecoins jointly issued by a Singapore and foreign issuer to be regulated under the framework and labelled as “MAS-regulated stablecoins, ” so long as the risks are sufficiently mitigated. MAS also wants to recognize cross-border wholesale use cases and a limited number of foreign-issued stablecoins regulated under a comparable foreign framework.
That matters because stablecoins are increasingly being treated as cross-border payment infrastructure, not just trading chips. Singapore clearly wants a seat at that table, but without letting the room get set on fire.
Japan is taking a different but related path. On August 31, the Financial Services Agency requested an exemption for “trust-type stablecoins” from certain mandatory tax filings starting in fiscal year 2027.
Trust-type stablecoins are fully backed by reserve assets held inside a legal trust structure and can be redeemed at par value in fiat currency. Under current Japanese rules, they are treated like other trusts for inheritance tax and income tax purposes. The FSA says that setup is impractical because these stablecoins are expected to circulate widely as payment tools and trustees cannot reliably know the names of all holders.
The agency also said users cannot receive income from simply holding the tokens, which makes some of the standard trust reporting requirements look clumsy at best.
That is not Japan loosening its grip on crypto. It is Japan adjusting the legal plumbing so a payment instrument does not get buried under filing rules built for a different kind of trust.
Japan’s parliament already passed revisions on July 15 that classify digital assets as financial assets and move the main crypto framework from the Payment Services Act to the Financial Instruments and Exchange Act. Those reforms brought securities-style regulation, stronger disclosure and business conduct requirements, new insider trading rules for crypto assets, and tighter compliance standards for digital currency businesses.
So the message from Tokyo is not “anything goes.” It is closer to: if crypto is going to keep growing up, the paperwork needs to catch up with reality.
Put together, these three developments show how differently regulators are treating stablecoins:
The BIS wants to keep private stablecoins from becoming the monetary backbone of the system.
Singapore wants stablecoins to exist, but only inside a hard-edged prudential framework.
Japan wants tax and reporting rules that make sense for stablecoins used as payments, not as ordinary trusts or speculative holdings.
That leaves the same core debate unresolved: are stablecoins a clean bridge between crypto and the real economy, or just old financial risk wearing a new interface?
The honest answer is both. Good stablecoins are genuinely useful. They settle fast, move globally, and give users a dollar proxy inside crypto markets without forcing them back through slow banking rails. Bad stablecoins are brittle, opaque, and one confidence shock away from a headache nobody wants.
The BIS is not wrong to worry about run risk, fragmented markets, and weak financial integrity. Those are real issues, not imaginary bureaucratic fog. But it is also true that a lot of users trust stablecoins precisely because they want something more transparent and more portable than the banking system they already know is flawed.
That tension is why tokenized deposits keep showing up in policy speeches. The BIS wants the benefits of blockchain-style settlement without giving up the bank-based monetary system. Critics would say that sounds like permissioned crypto with a suit on and a compliance badge. They would not be entirely wrong.
The counterargument from stablecoin issuers is just as blunt: if users keep choosing stablecoins, maybe the market is telling regulators something uncomfortable about the traditional system. That does not make every stablecoin safe. It does mean the old system does not get to coast on reputation alone.
Key questions and takeaways
- Why is the BIS so skeptical of stablecoins?
The BIS says stablecoins fail key monetary properties, singleness, interoperability, and financial integrity, and could also shift funding away from banks while creating issuer run risk. - What is Singapore trying to do?
MAS wants to keep stablecoins useful for payments and settlement, but only under stricter rules. The proposed framework adds an interest ban, stress testing, and recovery and wind-down planning. - Is Japan making stablecoins easier to use?
Narrowly, yes. Japan’s FSA wants to remove tax filing rules that do not fit how trust-type stablecoins actually circulate as payment tools. - Are stablecoins safer than banks, as Tether’s CEO argues?
That is a contested claim, not a settled fact. Safety depends on the issuer, reserve quality, and redemption mechanics, while banks have their own protections and backstops. - Why are regulators so hostile to stablecoin yield?
Because yield makes a payment token behave more like a savings or investment product, which raises consumer protection and systemic risk concerns.
The direction of travel is clear: regulators are trying to push stablecoins into a narrower, cleaner role as payment and settlement tools, not pseudo-savings accounts or yield farms in a trench coat. That may irritate the louder corners of crypto, but it is also how the category survives long enough to matter.
If tokenized deposits are really the future the BIS wants, they will have to prove they can move faster, cheaper, and with less friction than the alternatives. If they cannot, users will keep choosing the tools that actually work, policy speeches be damned.
Further reading
- Singapore, Japan review stablecoin rules; BIS probes its
- MAS Proposes Legislative Amendments for Stablecoin
- Japanese regulator requests tax filing exemption for trust-type stablecoins
- III. Anchoring trust in money: innovation beyond stablecoins
- Hong Kong and Japan Lead Asia’s Blockchain Payments Push
- Singapore’s Central Bank Embraces Stablecoins, Eyes Tight
- BIS Says Stablecoins Still Fall Short as Money at Scale
