Stablecoins haven’t looked so stable recently. The United Kingdom doesn’t seem to be too worried.
Despite the recent collapse of Terra’s UST stablecoin, the U.K. government will move forward with proposed regulations that would facilitate stablecoins’ use “as a recognised form of payment,” according to a report from The Telegraph.
“Legislation to regulate stablecoins, where used as a means of payment, will be part of the Financial Services and Markets Bill which was announced in the Queen’s Speech,” a spokesman for Her Majesty’s Treasury told the U.K.-based newspaper.
Fiat-backed stablecoins “have the capacity to potentially become a widespread means of payment,” the government said in a report issued last month after more than 12 months of study. “An amended e-money framework can deliver a consistent framework to regulate stablecoin issuance and the provision of wallets and custody services.”
Stability In A Volatile Market
Invented to capture the benefits of traditional cryptocurrencies, such as permissionless, peer-to-peer transfers, while addressing the price volatility that made it difficult to use them as money, stablecoins are crypto assets pegged to the value of fiat currencies. For example, USDT and USDC tokens are each one U.S. dollar.
That peg can be backed by a number of things. The value of fiat-backed stablecoins like Tether is guaranteed, in part, by reserves of actual U.S. dollars held in the traditional banking system. The value of algorithmic stablecoins like UST, on the other hand, is determined by a complex, self-executing algorithm.
As crypto markets fell last week, the most prominent algorithmic stablecoin, TerraUSD (UST), cratered, dropping from its intended $1 peg to as low as $0.13.
Perhaps regulators are not surprised. The U.K.’s report stressed new regulations to facilitate the use of stablecoins in the country should “exclude … algorithmic stablecoins, or those that may be linked to assets other than fiat currency,” on the grounds that they “may not offer sufficient price stability.”
Asset-backed stablecoins have fared better in recent days, with most of the largest either holding their peg or quickly reverting back to it, as in the case of UDST.
‘Global Hub For Crypto Assets’
Rishi Sunak, the Chancellor of the Exchequer said at the time of the report’s release it was his “ambition to make the UK a global hub for cryptoasset technology.”
“We want to see the businesses of tomorrow – and the jobs they create – here in the UK,” he continued, “and by regulating effectively we can give them the confidence they need to think and invest long-term.”
The news from the U.K. was among several developments among crypto regulators in the past couple of days.
Portugal, long considered a crypto haven, announced capital gains taxes on crypto assets. The announcement did not include a timeline for the tax nor a suggestion as to how steep it might be.
And Australia, which already levies such a tax, warned its taxation office would focus on crypto capital gains this tax season.
“The ATO is targeting problem areas where we see people making mistakes,” Assistant Commissioner Tim Loh said in a statement Sunday. “Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year.”