The Treasury has reaffirmed its commitment to introducing legislation encouraging the use of stablecoins as an accepted payment method in the UK amid a cryptocurrency market crash that saw the TerrasUSD “stablecoin” and linked Luna token delisted from major exchanges.
In April, the department unveiled a plan to support the use of certain cryptoassets as fully regulated currency, as part of the chancellor’s wider plan to create a “global cryptoasset hub” in the UK.
Since the announcement, the crypto market has seen a dramatic fall, putting the government’s stablecoin plan into question.
Notably, last week saw multiple stablecoins – cryptocurrencies that have a value tied to something else, often a fiat currency – drop significantly in value.
While cryptocurrency values are generally volatile, stablecoins were previously thought to be a much safer and more reliable digital asset, which is why they were part of the Treasury’s cryptocurrency plan.
On 7 May, Terra UST, which is supposed to be pegged 1:1 with the US dollar, fell to about $0.98. This drop caused the “algorithmic stablecoin” to plummet further and was unable to recover. The linked Terra Luna token, which at one point last month was valued at $118 (£96), dropped to $0.09 last week.
Another stablecoin, Tether, also broke its peg with the dollar last week.
Treasury: ‘certain stablecoins not suitable’
Despite the recent collapse of popular stablecoins, the Treasury has told UKTN it still plans to go ahead with its plans to embrace crypto but acknowledges a lot of work will need to be done to get it right.
“The government has been clear that certain stablecoins are not suitable for payment purposes as they share characteristics with unbacked cryptoassets,” a Treasury spokesperson told UKTN.
“We will continue to monitor the wider cryptoasset market and stand ready to take further regulatory action if required.
“This will create the conditions for issuers and service providers to operate and grow in the UK whilst ensuring financial stability and high regulatory standards so that these new technologies can be used reliably and safely.”
The Treasury also confirmed that “legislation to regulate stablecoins” will be “part of the Financial Services and Markets Bill, which was announced in the Queen’s Speech.”