The UK government is seeking consultations until March 21 on a regulatory proposal that explores the scope and regulation of stablecoins.
a consultation document launched yesterday by the UK’s HM Treasury explores the scope of regulation of stablecoins and how they can be used in the financial economy in general. I included several questions and recommendations provided by market participants.
The consultation will end on March 21, 2021, and the department is requesting responses from all stakeholders in the cryptocurrency market, such as crypto companies, technology companies and even traditional financial institutions.
The newspaper said that if the appropriate standards and regulations are met, certain stablecoins can play an important role in retail and international payments (including settlements). “This means that they would have the potential to offer benefits from distributed reason technology, such as speed, efficiency and resilience ”, stated the newspaper.
“The Treasury document was expected, but it is only the first in a series of documents expected this year. Stablecoins are again in the crosshairs, with regulators around the world realizing the threat if they are not regulated, ”said Bradley Rice, a partner at the Ashurst law firm.
“The Treasury strives to claim that this is just the initial regulation of cryptoassets – just enough to bring stablecoins to the regulatory perimeter, without wishing to contain broader innovation. There are significant similarities to the proposed European MiCA regime, but some subtle differences, ”he added.
Stablecoins it is a $ 32 billion subsector of the trillion dollar cryptocurrency market. They are generally pegged to a fiat currency on a 1: 1 basis held by centralized players or, more recently, as tokens governed by algorithms that aim at a predetermined value and differ in their delivery.
UK regulators widely consider the above to be the legal explanation for stablecoins as well, and have even expanded their definition to include stablecoins supported by “a number of different entities”.
The government also recognizes the big use case for stablecoins. According to a recent survey, the survey said, authorities found that more than 27% of UK citizens used stablecoins for payments, settlements and transactions.
In contrast, 47% of cryptocurrency owners said they saw the cryptocurrency asset class as a “gamble”, with 89% accepting the lack of regulatory protection. These metrics reinforced the need to regulate stablecoins, the survey said.
Another important consideration was the number of benefits that digital currencies offer over paper money.
“The Covid-19 pandemic has accelerated the use of digital forms of payment, which could increase acceptance of stablecoins for transactions and remittances in the future,” noted the newspaper.
However, I was not exempt from pointing out risks. The government said that stablecoins pose a risk to financial stability and market integrity, regardless of their use in payments. In addition, stablecoins may even increase competition, challenging the dominance of the financial institutions market – due to their ability to scale and integrate into online services – noted the newspaper.
In addition, algorithmic stablecoins were entirely out of legal reach for the time being, stating that such tokens resembled unskilled exchange tokens and presented similar risks in terms of maintaining their proposed value.
In the meantime, the government said the stablecoins would likely have their own legal classification.
“To reflect the proposal to bring additional tokens and activities associated with regulation, the government is considering whether a new category of regulated tokens may be needed – stable tokens,” said the newspaper.