Hey all, Liam here. 

It’s the new year, and the UK’s financial regulator has declared stablecoins pegged to the national currency a key priority in 2026.

Meanwhile, the Bank of England has led its own consultations in parallel to better understand how private sector money issuance could affect the British economy.  

But what does that mean exactly? 

For some, it means avoiding some of the pitfalls that have slowed US policy makers. 

“Stablecoins there have scaled quickly, but under fragmented oversight and unclear accountability,” Javed Khattak, co-founder and CEO of London-based digital identity provider Cheqd, told DL News. 

“UK regulators and industry are likely keen to avoid repeating that pattern by setting clear expectations early, while the market is still small enough to shape responsibly.”

The Genius Act, the American landmark stablecoin legislation that codifies stablecoin issuance in US law, still has a ways to go before it is formally implemented. 

Stillhat hasn’t stopped key industry players, such as Tether and Circle, from growing their respective stablecoins. Tether’s UST is worth $186 billion, while Circle’s USDC boasts more than $72 billion, which makes up a combined 83% of the total $308 billion stablecoin market, according to DefiLlama.  

As for the UK’s stablecoin market, it’s worth just over $5 million across three different products. Small indeed. 

But for Khattak and others, it’s an opportunity to bake safety and competitiveness into these products from the very beginning. 

“The UK has an opportunity to set clear, upfront rules that allow innovation while embedding safeguards early, rather than retrofitting regulation after adoption,” Benoit Marzouk, CEO and founder of the British stablecoin provider tGBP, told DL News. 

“The expectation is that once the infrastructure layer is clearly regulated, usage by merchants, fintechs, and institutions can grow organically,” he said.

And between the FCA and the Bank of England, five key pillars are emerging regarding stablecoin rules in the UK. 

The first, put forward by the central bank, is to keep at least 40% of a stablecoin’s backing assets with the Bank of England and the remainder in higher-yielding gilts. 

The second is that customers should be able to redeem one stablecoin for £1 in fiat by the end of a business day. 

Third, the Bank of England has proposed a strict, controversial rule to cap the amount of stablecoins an individual can hold between £10,000 and £20,000. As for businesses, they would be capped at holding £10 million.

Fourth, stablecoin providers must operate using a legal trust so that if the company goes bankrupt, the money belongs to the owners of the stablecoins rather than the company’s creditors. 

And finally, regulators in the UK are mimicking those in the US by prohibiting — at least for now — stablecoin issuers from dishing out yield to their holders. The FCA declared that stablecoins used for payments, not investment, would be a top priority this year. 

These rules would likely help avoid many of the pitfalls that have hit the dollar stablecoin market, including the collapse of Terra’s UST in 2022 and the digital bank run on Circle’s USDC when its reserves holder, Silicon Valley Bank, went bankrupt. 

Still, trying to catch its digital dollar cousin is a tall order. 

But for Khattak, that’s never been the objective. 

“This is not about competing with the dollar, rather, ensuring the UK remains relevant as a leading global fintech and financial services hub as payments become increasingly digital,” he said. 

With clear laws in place, however, institutions will certainly feel a lot more comfortable doing business. 

Regulatory clarity that allows banks, payment service providers, and large merchants to participate without reputational or compliance risk,” Marzouk said.

ICYMI

• SEC to dismiss Winklevoss Twins’ Gemini Earn lawsuit
  The Wall Street watchdog in 2023 sued Gemini, alleging the exchange offered unregistered securities via its Earn program.

• Binance seeks EU MiCA license with Greek subsidiary
  Binance, the world’s largest crypto exchange, has established a presence in Greece as it seeks a license to operate across the European Union.

• Hackers extort French crypto company Waltio after pinching data from 50,000 users
  Waltio, a platform that lets customers calculate and report their digital asset capital gains, said that the hackers did not obtain passwords or other sensitive customer data.

Latest from DL Research

Story of the week

Nomad hack: Crypto advocacy groups slam FTC ‘kill switch’ proposal

Crypto trade associations in the US have slammed a complaint filed by the Federal Trade Commission that alleges a Utah-based company broke the law by building software without a so-called kill switch.

That software, a crypto bridge called Nomad, was hacked for nearly $200 million in 2022. While its developers recovered millions in stolen crypto, Nomad has failed to gain any traction since it was relaunched in December that year.

Though the project is seemingly defunct, parent company Illusory Systems agreed last year to settle a complaint filed by the FTC.

Post of the week

Has the crypto industry given stablecoin issuers too much power?

DL News is an independent news organisation that provides original, in-depth reporting on the largely misunderstood world of cryptocurrency and decentralised finance. From original stories to investigations, our journalism is accurate, honest and responsible.

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