Stablecoin issuers require much less regulations because their activity is auditable onchain. If they start misbehaving they get regulated by the free market - people will stop using the given stablecoin and move to a competition.

You think that the free market has regulated or audited Tether? I don't think so, that company is about as sketchy as it is possible to be, and yet it continues to dominate the stablecoin market.