Across emerging markets, people are already using stablecoins and other virtual assets for cross-border payments, remittances, savings, trade, and access to foreign currency, often before regulators have had the opportunity to put formal rules in place. We explored these market dynamics, and what is driving stablecoin adoption, in our recent analysis of the evolving stablecoin landscape in Africa. Over the past year, we’ve been working with regulators, central banks, and policymakers to help close that gap: translating global standards into practical approaches that reflect how these markets actually work, the capacity of domestic institutions, and national policy priorities.
The challenge is getting that transition right. Move too slowly and markets can develop without effective oversight. Move too quickly and regulation can become overly prescriptive, difficult to supervise, or poorly suited to local realities. Our experience suggests that the answer is not to introduce every element of a comprehensive regime at once. It is to sequence the work: understand the market, build institutional capability, test assumptions with industry, establish the right legal foundations, and progressively strengthen supervision as both the market and regulatory capacity develop.
The roadmap below reflects some of what we’ve learned through that work.
Effective regulation begins with understanding how virtual assets are actually being used within your jurisdiction.
Are stablecoins primarily facilitating remittances? Supporting cross-border trade? Acting as a store of value? Providing access to foreign currency? Or are they largely being used for speculative investment?
The answers shape both the risks and the appropriate regulatory response.
Regulators should begin with a comprehensive policy assessment that examines demand drivers, emerging use cases, and the potential implications for monetary sovereignty, financial stability, market integrity, and consumer protection.
One of the most effective ways to build this understanding is through direct engagement with market participants. AIR has championed this approach through innovation Sprints – collaborative exercises that bring regulators and industry together to explore emerging business models, technologies, and use cases in a structured environment. This methodology has also been highlighted by the UK’s Financial Conduct Authority, which recently shared insights on how Sprints enable regulators to work alongside market participants, generating practical evidence that informs more effective and proportionate policy development.
Understanding the market is only one side of the equation.
Authorities must also assess whether they possess the legal mandates, technical expertise, supervisory tools, governance structures, and analytical capabilities needed to oversee virtual asset activities effectively. This requires looking beyond legislation to evaluate organisational readiness.
Risk-based supervision becomes particularly important where supervisory resources are limited and regulators need to prioritise areas of greatest systemic or consumer risk.
To support this process, AIR has developed an organisation-wide strategic assessment – Innovation Elements Framework (IEF) – a practical framework that helps regulators and central banks better understand the organisational capabilities that underpin effective and adaptive regulation. Rather than prescribing a one-size-fits-all solution, the IEF provides a structured way to examine governance, leadership, culture, people, systems, and decision-making, enabling institutions to identify capability gaps, prioritise areas for development, and build realistic pathways for strengthening regulatory readiness.
Virtual asset markets evolve too quickly for policy to be developed in isolation. Regulators need ways to engage directly with the firms and consumers affected by new rules, and the technologies those rules will govern to test whether policy assumptions hold up in practice. Engagement with exchanges, payment providers, financial institutions, technology firms, consumer representatives, academics, and other public authorities can reveal how markets are developing and where implementation challenges or unintended consequences are likely to emerge.
But consultation should not be the end point. Collaborative simulations, innovation Sprints, sandboxes, pilot programmes, and interoperability projects give regulators and industry an opportunity to test emerging approaches in controlled environments before they become permanent requirements.
We have used simulation exercises and Sprints to bring regulators and industry together around real-world policy scenarios. These exercises can surface trade-offs that are difficult to identify on paper, provide evidence about how proposed approaches might work in practice, and help supervisors build confidence in overseeing unfamiliar technologies and business models. The objective is not to test indefinitely. It is to create a feedback loop: engage the market, test assumptions, learn from the evidence, refine the approach, and scale what works. For fast-moving markets such as virtual assets, that ability to learn and adapt is an important part of effective regulation.
Virtual assets rarely fit neatly into existing legislation.
Banking, payments, securities, foreign exchange, taxation, anti-money laundering, and data protection frameworks may all apply to different aspects of virtual asset activity. A structured legal gap analysis enables authorities to identify overlapping mandates, inconsistencies across legislation, regulatory gaps, and opportunities for arbitrage.
Equally important is establishing effective coordination across regulatory agencies from the outset to ensure a coherent and proportionate regulatory framework.
Effective oversight does not require regulators to solve every cross-border supervisory challenge from day one. In markets where stablecoins and other virtual assets are global by design, a more practical starting point may be the domestic businesses and infrastructure through which those assets interact with the local financial system.
Virtual asset service providers, exchanges, wallet providers, payment institutions facilitating fiat conversion, and other domestic intermediaries can provide important visibility into transaction flows and create clear points at which regulators can strengthen AML/CFT compliance, consumer protection, reporting, and market oversight. From that foundation, regulation and supervision can be introduced progressively. Existing operators might first enter through registration or transitional licensing arrangements, giving authorities greater visibility into the market while firms are given clear expectations and time to adapt.
As regulatory and supervisory capability develops, authorities can progressively introduce more sophisticated requirements around capital, safeguarding, governance, reporting, and risk management, before moving towards full authorisation, risk-based supervision, thematic reviews, inspections, and enforcement. This allows regulation to develop alongside the institution responsible for delivering it. Rather than designing a sophisticated framework that may be difficult to implement immediately, policymakers can establish clear priorities, build supervisory experience, and increase the intensity of oversight as risks, markets, and institutional capabilities evolve.
The result is a pathway from initial market visibility to mature supervision, strengthening oversight without assuming that every element of the final regulatory architecture needs to be operational from the outset.
One of the clearest lessons from our work across multiple jurisdictions is that effective regulation begins with understanding local context. International standards provide an essential foundation, but successful implementation depends on how those standards are adapted to local market conditions, institutional capacity, policy priorities, and financial sector maturity. There is no single model for regulating stablecoins or broader virtual assets.
Instead, regulators need practical tools, evidence-based methodologies, and structured implementation frameworks that enable them to make informed policy decisions appropriate to their own jurisdictions. That is where our work at AIR continues to focus: supporting regulators through every stage of the policy development journey – from understanding markets and assessing institutional readiness to designing proportionate regulatory frameworks, strengthening supervisory capability, and building the confidence to regulate innovation responsibly.
As digital assets continue to reshape financial services across emerging markets, effective regulation will depend not on the speed of implementation, but on the strength of the process behind it. Frameworks that are evidence-based, developed collaboratively, and designed to evolve alongside the market are more likely to remain relevant as technology and financial systems continue to change.
If you would like to learn more about AIR’s work supporting virtual asset policy development and regulatory implementation, please reach out to Lauren Cassells, Innovation Program Lead, at lauren@regulationinnovation.org.
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