The UK Aims to Regulate Stablecoins and Protect Holders

The UK’s Treasury published a consultation paper where it outlined a number of ways to reduce the risk of investors holding stablecoins, after the catastrophic stablecoin collapse that saw TerraUSD (UST) go from its pegged $1 value to $0.022 at the moment. 

The consultation titled Managing the failure of systemic digital settlement asset (including stablecoin) firms: Consultation, recommended that regulation be put in the hands of the Bank of England, which would have “powers of direction over an appointed administrator” should a digital asset experience some turbulence and fall into trouble. 

"This role will enable it to pursue its statutory role with regard to financial stability," the consultation document said. It’s "important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA firms."

Responses to the consultation are requested by August 2, and will be considered by parliament in due time. 

This is just the latest government to shift their attention to regulating stablecoins after the demise of UST. On May 9, the stablecoin lost its peg at $1 and started to drop down quickly day-by-day, according to Bitpush Terminal data. In just three days, the once third-largest stablecoin went from down to less than 10 cents. While it pulsed up a few more times, it never fully recovered. It currently sits at $0.022. 

In addition, UST is now known as TerraClassicUSD (USTC), after Terra Labs launched their new blockchain. Not only did UST get a new name, but so did LUNA, which is now called Luna Classic (LUNC). The new blockchain is currently running under the previous ticker, and there will not be a stablecoin on that blockchain. 

The new LUNA is currently trading at $8.99.

Author: Tyler Irvin

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