Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The global proliferation of crypto and virtual assets has triggered an urgent regulatory response across jurisdictions. The ability of digital assets to democratize finance and fuel innovation is matched only by the risks they pose in the hands of bad actors, including money launderers, terrorist financiers, and unregulated entities. Against this backdrop, legislative efforts in the United States and other regions have focused on a dual goal, fostering innovation while protecting consumer interests and financial stability.
The United States’ recently enacted Guiding and Establishing National Innovation for U.S. Stablecoins Act, commonly referred to as the Genius Act, 2025 [“the Act”], is emblematic of this delicate balancing act. As Pakistan begins its regulatory path with the Virtual Assets Ordinance, 2025 [VAO, 2025], it is important to adopt a comparative perspective.
The Act, signed into law in July, is a significant piece of legislation establishing a robust federal framework for issuance and oversight of payment stablecoins. At its core, the Act delineates a categorical distinction between “permitted payment stablecoin issuers” and all other actors, mandating that only federally or state-qualified issuers are legally allowed to issue stablecoins in the United States.
The Act explicitly prohibits issuance or sale of stablecoins by non-permitted entities after a three-year transition period, thereby closing the door on regulatory arbitrage and unlicensed operations.
The legislative architecture of the Act places enormous emphasis on prudential regulation. The Act mandates a 1:1 reserve backing for all issued stablecoins, allowing only specific high-quality liquid assets such as treasury bills, insured deposits, and overnight repurchase agreements. Rehypothecation of reserves is strictly prohibited, and issuers must maintain monthly disclosures verified by registered public accounting firms.
Moreover, stablecoin issuers are bound by strict anti-money laundering (AML), sanctions compliance, and customer due diligence obligations under the Bank Secrecy Act. These standards position stablecoins more akin to bank-issued financial products than unregulated digital tokens.
The Act further carves out the scope of permissible activities for issuers, limiting their operations to issuance, redemption, and reserve management, and explicitly prohibits offering interest or yield on stablecoins. This restriction is aimed at preventing the emergence of quasi-banking entities and ensuring that stablecoins are used solely for payments and settlements. Furthermore, the Act establishes a rigorous vetting process for public companies seeking to issue stablecoins, particularly those not primarily engaged in financial services, thereby safeguarding integrity of the financial system from commercial exploitation of user data and behavioral analytics.
A unique feature of the Act is its embrace of federal-state dualism. State-qualified issuers are permitted, provided their regulatory frameworks are substantially like the federal regime. The Stablecoin Certification Review Committee, comprising top federal financial authorities, oversees certification and annual recertification of state regimes. This structure balances federal uniformity with state innovation, fostering a harmonized yet flexible regulatory environment.
On the contrary, jurisdictions like the European Union (EU) and the United Arab Emirates (UAE) have taken parallel, yet distinct, regulatory approaches. EU’s Markets in Crypto-Assets (MiCA) Regulation is comprehensive, covering a broad spectrum of crypto assets including utility tokens, asset-referenced tokens, and e-money tokens.
Unlike the Act’s laser focus on stablecoins, MiCA provides a pan-European licensing regime and subjects issuers to capitalization, governance, and whitepaper disclosure requirements. Meanwhile, UAE’s Virtual Assets Regulatory Authority (VARA) in Dubai offers a layered licensing model, emphasizing operational segregation, cybersecurity, and real-time audit requirements. VARA’s risk-based approach is technologically agile and emphasizes regulatory sandboxes to foster innovation.
Additionally, MiCA and VARA address the same foundational concerns, consumer protection, market integrity, and financial stability, but they adopt divergent tactics. MiCA leans toward harmonization and centralized oversight via the European Securities and Markets Authority (ESMA), whereas VARA champions bespoke compliance, dynamic risk scoring, and modular regulation. The Genius Act, on the contrary, injects a strong banking ethos into the crypto realm, creating a regulatory perimeter that closely mirrors traditional financial institutions.
Turning to Pakistan’s VAO, 2025, one finds a nascent but ambitious attempt at entering the regulated crypto economy. The Ordinance establishes a dedicated regulatory authority with powers to license, supervise, and sanction Virtual Asset Service Providers (VASPs). It introduces registration requirements, capital adequacy norms, and fit-and-proper criteria for directors and senior management.
Like the Act, the VAO, 2025 mandates AML compliance and allows for enforcement actions against non-compliant actors. However, its scope is broader in defining “virtual assets”, encompassing not just stablecoins but all forms of digital tokens.
Despite its breadth, the VAO, 2025 suffers from operational and structural deficiencies. Unlike the Act, which delineates the exact composition of permissible reserves, redemption procedures, and auditing norms, Pakistan’s framework remains vague on critical prudential aspects. There is no explicit requirement for 1:1 reserve backing or a monthly third-party audit.
Moreover, the VAO, 2025 lacks a clearly defined licensing pipeline with timelines, appeal mechanisms, or transparency in decision-making. The Act, on the contrary, stipulates defined review periods, hearing rights, and judicial recourse, making it procedurally robust and constitutionally sound.
Another fundamental shortfall in VAO, 2025 is the absence of tiered regulatory pathways for different scales or types of VASPs. The Act allows for a threshold-based transition to federal oversight when stablecoin issuance surpasses US$10 billion, preserving scalability and regulatory proportionality. In Pakistan’s case, the VAO, 2025 does not differentiate between fintech startups and large-scale platforms, thereby imposing a one-size-fits-all compliance burden that could stifle innovation.
From a critical standpoint, while the Act advances the regulatory frontier by establishing clear lines of authority, prudential discipline, and enforcement tools, it also leans heavily toward centralization. The exclusion of non-permitted entities, prohibition of interest-bearing features, and constraints on product design might overturn the growth of DeFi applications and algorithmic stablecoins. The Act, in essence, privileges safety over innovation, a trade-off that may not sit well with proponents of crypto-native decentralization.
However, the VAO, 2025 reflects an intent to integrate into the global regulatory fabric, but lacks the depth and precision necessary for effective enforcement and industry confidence. Absence of granular compliance obligations, definitional clarity, and regulatory sandboxes indicates a policy framework still in its formative stage. Without substantive revisions, the Ordinance risks being perceived as an aspirational document rather than an enforceable regulatory instrument.
To enhance its standing as a crypto-friendly jurisdiction, Pakistan must pivot toward a more standardized and dynamic regulatory architecture. This includes codifying explicit reserve management protocols, enabling tiered licensing models, establishing sandbox environments for innovation testing, and ensuring alignment with Financial Action Task Force (FATF) standards on virtual assets. Pakistan should also consider bilateral cooperation with regulatory authorities in advanced jurisdictions to foster knowledge sharing and cross-border compliance harmonization.
Only through such comprehensive reforms can Pakistan transform its VAO, 2025 into a credible, innovation-friendly, and enforcement-ready framework that attracts investment, safeguards consumers, and fortifies financial integrity in the digital asset space.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions