The UK Treasury has reportedly decided to recognize stablecoins as a legitimate means of payment. The crypto community reacted with mixed feelings, largely due to the recent collapse of one of the most well-known algorithmic stablecoins, TerraUSD (UST).
The Daily Telegraph covered the announcement and highlighted the Treasury’s intention to regulate stablecoins across the UK. The plan was revealed during the Queen’s Speech, in which Prince Charles outlined new legislation for several sectors, including measures to stimulate economic growth and raise living standards. He said:
“A Bill will be introduced (the Economic Crime and Transparency of Business Act) to strengthen powers to tackle illicit finance, reduce economic crime and support business growth.”
Treasurey aims to regulate 1:1 backed stablecoins
The Terra ecosystem recently collapsed: LUNA and UST crashed and are unlikely to recover. That failure is expected to serve as a warning signal for regulators. Nonetheless, the Treasury remains eager to ensure the UK financial services industry stays at the forefront of technology and innovation — an objective previously emphasized by Chancellor Rishi Sunak.
However, the Treasury’s plan does not legalize algorithmic stablecoins. It targets stablecoins that are fully backed on a 1:1 basis, such as Tether (USDT) or USD Coin (USDC). A Treasury spokesperson said:
“Legislation recognizing stablecoins as a legitimate means of payment will form part of the Financial Services and Markets Bill, as set out in the Queen’s Speech.”
The Treasury seeks to create opportunities for innovation while safeguarding financial stability as new fintech solutions are introduced. For the ministry, fully backed 1:1 stablecoins are best suited to that balance. By contrast, TerraUSD’s value was linked to another crypto asset, prompting the Treasury to note:
“The government has been clear that some stablecoins are not suitable as a means of payment because they share characteristics with unbacked crypto assets.”
SEC echoes the UK Treasury
SEC Commissioner Hester Peirce recently emphasized that any regulatory framework for stablecoins should account for the possibility that things can go wrong. Peirce wrote on Twitter:
“I’m happy to discuss how to meet the SEC’s regulatory goals while not fearing trial and error, which is so important for innovation.”
Speaking at an online event, Peirce also addressed regulators’ interest in stablecoins and urged the SEC to allow exceptions for some technologies so that necessary experiments can take place. She added:
“We need to leave room for failure because it is an integral part of trying something new, and our structure does allow for that trial-and-error approach. I hope we will use it.”