East Asia’s financial centres are establishing local‑currency stablecoins through comprehensive regulatory frameworks. But evidence from Europe suggests that regulatory clarity alone cannot dislodge US dollar-denominated stablecoins, given their deep liquidity and established roles in trade payments, collateral and settlement.
As Hong Kong, Japan, Singapore and South Korea implement stablecoin regulations, it remains unclear whether East Asian stablecoins can build viable niches within a US dollar‑dominant ecosystem.
Analysis of Europe’s Markets in Crypto‑Assets (MiCA) regulation finds that while MiCA has provided legal certainty for euro‑denominated stablecoins, it has not translated into stronger market performance. Since mid‑2024, euro‑based stablecoins’ share of global capitalisation has declined relative to US dollar rivals, accounting for around 0.1 per cent of the market. MiCA illustrates an important puzzle — regulation can enable Europe’s stablecoins to exist at scale but cannot create liquidity, attract market‑makers or overcome entrenched US dollar usage.
The Asia Pacific is leading global crypto adoption, with annual on‑chain transaction volumes rising from US$1.4 trillion to US$2.4 trillion year‑on‑year as of June 2025. Yet Asian‑denominated stablecoins remain a tiny niche within a market capitalisation of more than US$310 billion. Roughly 99 per cent of the market is captured by US dollar tokens such as Tether’s USDT and Circle’s USDC.
This ‘MiCA paradox’ reflects a tension between regulatory enablement and market outcomes. Network effects in stablecoins reward first-movers that achieve scale, especially in currencies already dominant in cross-border transactions. European and Asian stablecoins face stringent ex‑ante rules while competing with incumbents that built global network effects during permissive early years.
East Asia is accelerating its stablecoin regulatory agenda. Hong Kong’s Stablecoins Ordinance, effective since August 2025, requires issuers to maintain 100 per cent backing with high‑quality liquid assets under Hong Kong Monetary Authority (HKMA) supervision. Japan’s amendments to the Payment Services Act permit only licensed banks and trust companies to issue Japanese yen‑pegged stablecoins.
Singapore’s Single‑Currency Stablecoin framework was finalised in 2023 — including updated standards to increase cross‑border activities and complement pilots such as Hong Kong and Shanghai Banking Corporation’s cross‑border tokenised deposit service. South Korea paused its central bank digital currency project in mid‑2025 as demand for private‑sector stablecoins grew.
These regulatory regimes clarify who can issue stablecoins, prescribe conservative reserve composition and guarantee redemption rights. But regulatory sophistication does not guarantee market traction without deep trading pairs, market‑making support and real‑economy payment integration.
Deep liquidity makes USDT and USDC dominant on most major exchanges and the primary collateral in decentralised finance. A merchant accepting USDT taps into on‑chain liquidity worth billions of US dollars and numerous trading pairs, while one relying on the JPYC or StraitsX Singapore Dollar faces thinner markets, wider spreads and greater slippage.
East Asian stablecoins also face region‑specific constraints. Currency convertibility limits and capital controls reduce the international appeal of some regional units, while the South Korean won’s restricted offshore circulation limits its role in global portfolios. The absence of harmonised rules in East Asia’s regulatory landscape further hinders the emergence of a single East Asian ‘stablecoin zone’.
Mainland China’s ban on private cryptocurrencies and its prioritisation of the digital yuan create strategic ambiguity. Hong Kong has been allowed to experiment with stablecoins, effectively operating as a laboratory under Beijing’s oversight. This allows Chinese firms to gain experience with tokenisation but leaves issuers uncertain whether Hong Kong‑based stablecoins will be seen as tools for Chinese renminbi internationalisation or threats to monetary control.
Greater integration with traditional finance can leverage the region’s strong banking institutions. In Japan, regulators have framed bank‑issued Japanese yen stablecoins as a tool to accelerate the transition away from cash. In Singapore and Hong Kong, tokenised deposits and regulated stablecoins are being woven into cross‑border cash management, trade finance and treasury operations. Public–private partnerships and coordinated pilots are essential to bootstrapping scale in specific corridors.
It is unclear whether the window for reshaping the stablecoin landscape has already narrowed. USDT and USDC attracted around US$45 billion in net inflows in the third quarter of 2025, underscoring consolidation around incumbents. Yet, East Asia retains advantages that Europe lacks. The region exhibits some of the world’s highest crypto adoption levels, with Japan recording roughly 120 per cent growth in on‑chain value received and South Korea ranking as the world’s second‑largest retail crypto market. East Asian regulators are also moving faster than many counterparts outside the United States.
East Asian stablecoins confront the same core problem that has constrained Europe — regulation enables safe issuance but cannot easily overturn first‑mover advantages and global network effects built around US dollar‑denominated tokens. Success depends on focusing on high‑value niches, building regional interoperability, embedding stablecoins in trusted banking systems and using public–private partnerships to seed liquidity in targeted corridors.
The objective is not to dethrone USDT or USDC globally, but to create sustainable digital local‑currency ecosystems serving East Asia’s trade, payments and financial‑stability needs. Europe’s experience under MiCA suggests that regulatory enablement without an ecosystem strategy yields disappointing results. East Asian policymakers must instead design frameworks that work with the realities of currency competition and network effects.
David Krause is Emeritus Associate Professor of Finance at Marquette University.
