{"id":4383,"date":"2026-11-04T06:18:43","date_gmt":"2026-11-04T06:18:43","guid":{"rendered":"https:\/\/kingmakersiasacademy.com\/current-affairs\/?p=4383"},"modified":"2026-11-05T06:32:18","modified_gmt":"2026-11-05T06:32:18","slug":"cryptocurrencies-and-stable-coins","status":"publish","type":"post","link":"https:\/\/kingmakersiasacademy.com\/current-affairs\/cryptocurrencies-and-stable-coins\/","title":{"rendered":"Cryptocurrencies and Stable Coins"},"content":{"rendered":"\n\n\n
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SYLLABUS: Science and Technology<\/b><\/p>\n

General Studies \u2013 :\u00a0 III <\/b>Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.\u00a0\u00a0<\/span><\/p><\/blockquote>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

IN NEWS:<\/b> Coming of age<\/span><\/p>\n

QUESTION: <\/b>Distinguish between cryptocurrencies and stablecoins. What regulatory challenges arise from their differing risk profiles?(250 words)<\/span><\/p>\n

ANSWER: <\/b>Cryptocurrencies are built on the scarcity of a decentralised asset and carry market risk. Stablecoins are built on a promise of redemption and carry the run risk of a money-like claim. That difference sets the regulatory problem for each.<\/span><\/p>\n\n\n\n\n\n\n\n\n\n
Basis<\/b><\/td>\nCryptocurrencies (e.g., Bitcoin, Ether)<\/b><\/td>\nStablecoins (e.g., USDT, USDC)<\/b><\/td>\n<\/tr>\n
Value anchor<\/span><\/td>\nNone; price comes from supply, demand and speculation<\/span><\/td>\nPegged to a reference asset, usually a fiat currency, gold or a basket<\/span><\/td>\n<\/tr>\n
Backing<\/span><\/td>\nTypically none; value rests on network scarcity or utility<\/span><\/td>\nReserves (cash, T-bills, deposits) or, in algorithmic designs, a code-based mechanism<\/span><\/td>\n<\/tr>\n
Price behaviour<\/span><\/td>\nHighly volatile<\/span><\/td>\nDesigned to be stable, but they can \u201cde-peg\u201d<\/span><\/td>\n<\/tr>\n
Issuer<\/span><\/td>\nOften decentralised, with no one to hold accountable<\/span><\/td>\nUsually a centralised, identifiable issuer who promises redemption<\/span><\/td>\n<\/tr>\n
Main use<\/span><\/td>\nInvestment, speculation, store of value<\/span><\/td>\nPayments, settlement, trading liquidity, remittances<\/span><\/td>\n<\/tr>\n
Nature of risk<\/span><\/td>\nMarket risk to the holder<\/span><\/td>\nRun, reserve and counterparty risk, and possibly systemic risk<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Regulatory challenges from the differing risk profiles<\/b><\/h3>\n
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  1. Classification.<\/b> The first problem is which legal category each asset falls into. A volatile token with no issuer sits awkwardly among securities, commodities and currencies. A stablecoin looks like a payment instrument, a money-market fund or a bank deposit, depending on its reserves and its redemption promise. Regulators in different countries have chosen different answers, which leads to overlapping or conflicting jurisdiction.<\/span><\/li>\n
  2. Different regulatory targets.<\/b> For cryptocurrencies the focus is investor protection, market manipulation, exchange conduct and tax. Because there is often no issuer, regulators must regulate intermediaries such as exchanges and custodians, not the asset itself. For stablecoins, regulators can regulate the issuer and focus on reserve quality, redemption rights, disclosure and insolvency treatment.<\/span><\/li>\n
  3. Run risk and systemic spillover.<\/b> A stablecoin that loses confidence can trigger a rush to redeem. If the issuer has to sell reserve assets such as government securities quickly, the stress can spread to short-term funding markets. Cryptocurrency price crashes mostly hurt investors, though large leveraged exposures can spread losses.<\/span><\/li>\n
  4. Monetary sovereignty and capital flows.<\/b> Widely used stablecoins linked to a foreign currency can substitute for the domestic currency, a form of \u201cdigital dollarisation\u201d. They can weaken central-bank control over money supply and make capital controls harder to enforce. This worry is sharper for emerging economies such as India, and it is part of the case for central bank digital currencies like the e-rupee.<\/span><\/li>\n
  5. Illicit finance.<\/b> Both asset classes can be used for money laundering and sanctions evasion. Stablecoins are more attractive for large-value transfers because they hold their value. Their issuers can, however, freeze or block tokens, which creates a point of control that purely decentralised cryptocurrencies lack.<\/span><\/li>\n
  6. Cross-border fragmentation.<\/b> These assets move across borders instantly, while regulation is national. There is no mutual-recognition or equivalence agreement between the US GENIUS Act and the EU\u2019s MiCA, so a stablecoin authorised in one has no standing in the other. That leaves issuers facing parallel compliance regimes.<\/span><\/li>\n<\/ol>\n

    How regimes are responding<\/b><\/h3>\n