On The Legislation Prospective For Consumer Protection Of Stablecoin

Abstract

Stablecoin, as a specific type of cryptocurrency, is undoubtedly one of the underlying infrastructures that underpin the rapidly growing decentralised finance (Defi) ecosystem. It is regarded and used as the on-chain “legal currency”. Questions arise as to is it such a low-volatility cryptocurrency really stable and is it able to always stay stable. The answers are probably no. Whether the underlying code is law is for debate, but it is not yet applicable to Defi and stablecoins. The law would undoubtedly play a positive role in improving the stability of stablecoin. Through this paper, we focus on the consumer protection aspect of stablecoin legislation and regulation. We set out to analyse the nature of stablecoins in a legal sense. We first survey the legislative practice of cryptocurrencies in multiple jurisdictions and extract proposals specifically for stablecoins for comparative analysis propose how to best regulate stablecoins. The definition of “stable” is explored from three critical aspects: price stability, collateral stability and permissionless. Finally, we conclude by proposing a general legislative framework for stablecoins. We aim to contribute to the current state of stablecoin and provide insight for international principles for such regulation in the future.