The UK Treasury has reportedly decided to continue treating stablecoins as a legitimate means of payment, a move that the crypto community has greeted with mixed reactions. Concerns intensified after the recent collapse of one of the most prominent algorithmic stablecoins, TerraUSD (UST).
A local report in The Telegraph highlighted the Treasury’s intention to regulate stablecoins across the United Kingdom. This objective was revealed in the Queen’s Speech, where Prince Charles announced new legislation across several sectors, including measures designed to stimulate economic growth and improve living standards. He said:
“A Bill (Economic Crime and Business Transparency Bill) will be brought forward to further strengthen powers to tackle illicit finance, reduce economic crime and help businesses grow.”
Treasury aims to regulate 1:1-backed stablecoins
Recently, the entire Terra ecosystem collapsed, with LUNA and UST plunging and becoming effectively irrecoverable. Such events are likely to raise red flags among regulators. Nevertheless, the Treasury remains focused on ensuring that the UK’s financial industry stays at the forefront of technology and innovation—a point previously emphasized by the Chancellor, Rishi Sunak.
However, the Treasury’s plan does not legalize algorithmic stablecoins. Instead, it favors 1:1 fully backed stablecoins such as Tether (USDT) or USD Coin (USDC). A Treasury spokesperson said:
“Legislation to regulate stablecoins when used as a means of payment will form part of the Financial Services and Markets Bill, as announced in the Queen’s Speech.”
The Treasury intends to create growth opportunities while safeguarding financial stability by introducing new financial technologies. It views 1:1 backed stablecoins as well-suited to contribute to these goals. The spokesperson also noted that TerraUSD’s value was tied to another cryptocurrency and added:
“The government has been clear that certain stablecoins are unsuitable for payments because they share characteristics with unsupported crypto-assets.”
SEC commentary echoes Treasury concerns
U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce recently underscored the need to allow room for failure while supporting a regulatory framework for stablecoins. Peirce wrote on Twitter:
“I would be happy to talk about how to achieve the SEC’s regulatory objectives without inhibiting the trial-and-error that is so crucial to innovation.”
Peirce also addressed regulators’ interest in stablecoins in remarks to an online panel, urging the SEC to permit exceptions for certain technologies so experiments can proceed. She said:
“We need to allow room for failure, because that is of course part of trying new things, and our frameworks really do allow for that kind of trial and error. I hope we will use it.”
In summary, the UK Treasury’s approach centers on regulating stablecoins intended for use as payment instruments—favoring fully backed, 1:1 models—while remaining cautious about algorithmic varieties that resemble unsupported crypto-assets. Regulators on both sides of the Atlantic appear to be seeking a balance between enabling innovation and protecting financial stability.