Why stablecoins fail: design fragilities, regulation, and the role of institutions

Stablecoins facilitate large volumes of on-chain payments, raising urgent questions about stability and regulation. This paper reviews recent studies on the economic design of stablecoins and the determinants of their price stability. It also introduces a cross-country dataset covering forty jurisdictions. Using hand-collected documents and an LLM-assisted evaluation, we score legislation, licensing, reserve requirements, disclosure, and currency restrictions. Then, we construct composite indicators of openness and risk containment. By linking these measures to institutional-quality data from the Quality of Government database, we discovered that stronger rule of law, protection of rights, and higher order and security are associated with more comprehensive and enforceable frameworks. This study expands the law-and-finance literature to include digital assets, providing global policy insights and lessons for sustainable financial development.