In recent years, stablecoins have moved far beyond being an exotic product of the crypto market. They have effectively become a standard tool for payments, value storage, and a key element of the infrastructure used by exchanges, DeFi platforms, and payment services.

Their core idea is straightforward: to provide users with a digital instrument whose value is closely pegged to a clear underlying asset – most often the US dollar or another fiat currency, and in some cases gold or a basket of assets. For businesses, this is a way to make payments faster and cheaper. For retail users, it is a way to reduce exposure to the volatility of traditional cryptocurrencies.

In parallel, a broader trend is taking shape – the tokenization of real-world assets (Real World Assets, RWA). This involves moving not only money, but also real estate, debt instruments, commodity assets and other familiar financial instruments into digital form.

Against this backdrop, it is logical to look at both the global market and how the Kyrgyz Republic positions itself within it. This article provides a general overview, complemented by expert commentary from Temir Kazybay, Chair of the Association of Virtual Asset Market Participants (AURVA).

Stablecoin Models: Which Designs Appear More Resilient?

In current practice, several main approaches to structuring stablecoins can be distinguished: fully fiat-backed models, crypto-collateralized models, algorithmic designs, and hybrid structures. After a period of experimentation with different schemes, the market has clearly shifted towards more conservative designs, where the nature of the backing and the legal framework are transparent and understandable.

The position of the professional community is well reflected in Temir Kazybay’s answer to the question of which stablecoin models he considers the most resilient.

Which types of stablecoin backing do you consider the most resilient? What are their strengths and weaknesses?

“I consider the most resilient those stablecoin models that have achieved a balance between technological efficiency and legal reliability, which in today’s environment means two types:

Strictly regulated fiat-backed stablecoins (for example, USDC). Their strength lies in a maximum peg to a fiat currency (1:1), which ensures low volatility. Their weakness is a high level of custodial and regulatory risk, since users must fully trust the centralized issuer, its financial integrity, and its compliance with stringent global standards (for example, MiCA).

Hybrid models (partially backed). After the collapse of purely algorithmic systems, the market shifted to hybrid designs. Their strength is that they combine partial backing (by crypto or fiat assets) with algorithmic mechanisms. This provides greater decentralization than fiat models, while at the same time reducing the risks inherent in fully unbacked systems. Hybrid stablecoins demonstrate the highest practical resilience in conditions of market shocks.

A key factor for resilience is not only the quality of the backing, but also liquidity on the secondary market. In the absence of sufficient liquidity, even a perfectly backed stablecoin can lose its peg (de-peg) and become vulnerable to manipulation.”

In practical terms, this means the following. First, investors and regulators today are interested not only in the formal fact that “there is backing”, but in its structure, the quality of the underlying assets, and how easily liquidity can be accessed. Second, confidence in the issuer and in the jurisdiction in which it operates becomes at least as important as the technology itself.

Tokenization and International Trends: From Speculation to an Institutional Market

The global virtual asset market is gradually moving out of a phase of purely speculative interest and entering a stage of institutional adoption. Large funds, banks and corporates are entering this space, while regulators are developing dedicated regimes for working with digital assets and stablecoins.

The key trends of the current phase are described in detail by Temir Kazybay.

In your view, how is the global market for tokenization and virtual assets developing? Which trends are currently the most significant?

“The global market is going through a phase of institutionalization and maturation. We are seeing a fundamental shift from the speculative interest that characterized previous cycles, towards acceptance by large, conservative players.

Two trends are particularly significant:

Institutional Adoption. Large investment funds, banks and corporate treasuries are actively entering the sector through regulated financial instruments such as ETFs on digital assets. This inflow of ‘sticky’ capital reduces historic volatility and increases overall market stability.

Tokenization of Real Assets (RWA Tokenization). This is the most explosive and transformative trend. RWA tokenization converts traditional assets (real estate, bonds, receivables) into digital tokens, making them liquid and available 24/7. Forecasts indicate that this market could grow to USD 9.43 trillion by 2030. Institutional investors are already actively tokenizing US Treasury obligations, which reflects a high level of trust in this technology. At the same time, the success of RWA depends on the creation of reliable legal structures (SPVs) and the introduction of technological standards with embedded compliance (for example, ERC-7518) to meet global regulatory requirements.”

In other words, tokenization of real assets is no longer a theoretical scenario but an emerging segment of the global capital market. At its core are legal structures (such as SPVs), clear investor rights and protection in case of default, robust compliance standards and predictable regulation across jurisdictions.

Kyrgyz Republic: Legal Framework, USDKG and Market Development Challenges

The Kyrgyz Republic is one of the few countries in the region where virtual assets are regulated by a dedicated law. The Law of the Kyrgyz Republic “On Virtual Assets” has legalized the circulation of such instruments, defined the main types of activities (mining, issuance and circulation of virtual assets, services of VASPs), and introduced licensing for exchanges, exchange points and other service providers.

Building on this framework, the launch of the gold-backed stablecoin USDKG became the next important step. Its issuance is carried out by a company with state participation, while operational management has been delegated to the private sector. The instrument is presented as part of the country’s financial infrastructure and a potential mechanism for settlements, including at the regional level.

At the same time, the market is still forming and remains highly sensitive to reputational risks. The experience with MCN Coin, where citizens suffered significant losses, has clearly demonstrated how important it is to distinguish between licensed, regulated projects and initiatives without a transparent legal basis.

In this context, it is particularly important to understand how the expert community assesses the current situation and the next steps.

How would you assess the current situation on the digital asset market in the Kyrgyz Republic? What steps have already been taken and what still needs to be done?

“Kyrgyzstan has taken up a strategically advantageous position in Central Asia.

The following steps have been taken:

A Legal Framework Has Been Created. The Law of the Kyrgyz Republic ‘On Virtual Assets’ (2022) was adopted, which legalized the circulation of virtual assets and introduced mandatory licensing for virtual asset service providers (VASPs), including crypto exchanges and exchange offices. This creates a civilized legal environment.

USDKG Has Been Launched. The issuance of the state-supported stablecoin USDKG, backed by gold, is a landmark step. Issuance with state participation ensures a maximum level of institutional trust, while operational management by the private sector preserves flexibility. USDKG is positioned as an important instrument for regional settlements.

What remains to be done:

Strengthen Compliance and Supervision. It is necessary to set out in detail and effectively implement AML/KYC requirements, aligning national norms with international FATF standards. This is a key step in countering the shadow market and increasing the confidence of international partners.

Eliminate Regulatory Gaps. The legislation needs to be further developed in terms of taxation of operations with virtual assets and mechanisms for investor protection. A clear and balanced tax regime is a direct incentive for capital legalization.

Stimulate Innovation. Regulatory sandboxes are needed to test RWA tokenization projects, which will allow Kyrgyzstan to move from simply regulating cryptocurrencies to the genuine digitalization of the economy.”

In summary, the country already has three key elements in place: a basic law, a transparent state-backed stablecoin structure, and institutional players. However, sustainable market growth will require finalizing the tax regime, strengthening investor protection and ensuring that AML/KYC requirements are implemented in practice, not only on paper.

The Role of AURVA: Standards, Awareness and Dialogue with the State

A second important layer of the ecosystem is self-regulation. The virtual asset market is evolving very quickly, and this creates room for misuse and fraudulent schemes.

In this configuration, the Association of Virtual Asset Market Participants acts as an intermediary between business and the regulator, and as a driver of sectoral standards.

What is the role of AURVA in shaping a safe and well-regulated ecosystem? What priorities does the Association pursue?

“The role of AURVA is critically important as a link between the regulator (the State Financial Regulation Service, the National Bank) and market participants. We not only represent the interests of business, but also advocate for self-regulation and higher standards in the industry.

The Association’s priorities are as follows:

Standardization and Transparency. Developing and implementing sectoral codes of conduct and internal AML/KYC standards for licensed VASPs that not only meet, but exceed minimum legislative requirements. Our goal is to make Kyrgyz VASPs a regional benchmark for transparency.

Education and Protection. Carrying out active work to improve financial literacy and explain the legal difference between licensed (safe) and illegal (fraudulent) schemes. Only an informed investor can ensure the long-term health of the market.

Strategic Development. Cooperating with government bodies on a roadmap for RWA tokenization, as well as proposing balanced regulatory and tax solutions that encourage, rather than hinder, the legal growth of the sector.”

Taken together, this means that AURVA effectively acts as a “quality filter” on the market: it promotes higher standards among participants, helps citizens understand the distinction between legitimate and fraudulent schemes, and works with the state not only on classic cryptocurrency issues, but also on a strategy for tokenization of real assets.

Conclusion

Today, the Kyrgyz Republic is at an early, yet promising stage in the development of its stablecoin and virtual asset market.

On the one hand, the country already has important starting conditions in place: a dedicated law, a developing VASP infrastructure, the launch of the gold-backed stablecoin USDKG and a professional community. On the other hand, the market is still relatively small and vulnerable to negative cases, while many important questions – from taxation to investor protection mechanisms – require further refinement in practice.

In the Kyrgyz context, stablecoins and tokenization are not tools for short-term speculation, but potential building blocks of a new financial architecture: for more convenient settlements, for attracting capital into the country’s real assets, and for deeper integration of the Kyrgyz Republic into global value chains.

How far this potential is realized will largely depend on whether three elements can be combined: stable and predictable regulation, technological development of the infrastructure, and responsible behaviour by market participants.