Jeremy Barnett sets out the proposed approach to regulating stablecoins being adopted by the UK and the need for an accelerated standard on the auditing of cryptocurrencies.
The Financial Conduct Authority (FCA) and the Bank of England (Bank) have recently published their proposed approach to regulating stablecoins. The proposals cover any payment systems in the future that use stablecoins on a ‘systemic’ scale.
Definition of stablecoins
There are a number of definitions of ‘a stablecoin’.
The Financial Stability Board (FSB) defines a stablecoin as ‘a category of cryptoassets that aim to maintain a stable value relative to a specified asset or basket of assets providing perceived stability when compared to the highly volatility of unbacked cryptoassets’.
Wikipedia defines it as follows: ‘A stablecoin is a type of cryptocurrency where the value of the digital asset is supposed to be pegged to a reference asset, which is either fiat money, exchange-traded commodities (such as precious metals or industrial metals), or another cryptocurrency.’
Stablecoins are used:
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- To facilitate transactions between cryptoassets;
- As a method for consumers to enter and exit the cryptoassets market, converting cryptoassets to a fiat currency ‘off ramp’ or fiat currency to cryptoassets ‘on ramp’;
- As a method of payment;
- As a ‘store of value’ or investment;
- As collateral in decentralised finance (DeFi) to provide liquidity pools and help with price stability in market making applications; and
- For obtaining a yield on lending platforms