Stablecoins have become a popular tool for various groups seeking to store assets, largely due to the current lack of stringent government oversight. Upcoming regulations could severely change this landscape, possibly allowing for the creation of new, unregulated stablecoins.

Ki Young Ju, CEO of crypto analytics firm CryptoQuant, responded to this potentiality in a post on the subject. He posted his reflections on X (formerly Twitter) on May 11. He argued that more regulation of current, approved stablecoins could unintentionally accelerate the expansion of “dark stablecoins.”

Native stablecoins are more appealing to users since they are less volatile than other cryptocurrencies. We look at them as granting liberation from legacy financial entities. People and entities in jurisdictions without capital controls love them. They draw in the people who want to work around existing, established bank systems.

The absence of regulatory clarity has increasingly begun to worry the industry, but just as much–if not more–policymakers themselves. In particular, authorities have expressed concern that stablecoins may be used for bad acts. Finally, they express concerns on the potential impact of these currencies on financial stability. In light of these issues, regulations have been proposed in many jurisdictions to place stablecoins under increased regulatory control.

Ki Young Ju’s analysis underscores an important and yet unintended consequence of these regulations. Further tightening the regulatory environment for current established stablecoins risks pushing users toward unregulated alternatives. These unregulated alternatives would be allowed to function entirely beyond the reach of government oversight. These hypothetical “dark stablecoins” would be even riskier—operating in a more opaque and unaccountable manner.

The proliferation of dangerous, unregulated stablecoins would create serious law enforcement and regulatory harms. Second, it would open up new avenues for illegal behavior while eroding attempts to encourage more responsible financial behavior.