Treasury unveils plans for stablecoin insolvency regime led by Bank of England
The Treasury has today unveiled plans for an insolvency regime for stablecoins as it looks to safeguard against the type of crash that saw terra shed almost all of its value this month.
In a consultation paper published today, the Treasury proposed the Bank of England would spearhead the response to a collapse in the value of a stablecoin that could threaten the stability of the wider financial system.
Stablecoin issuers that collapse will be placed into special administration by the Bank, under the plans, in order to protect consumers and holders of the currency in the event they fail.
The new plans come after the Treasury threw its weight behind the crypto ecosystem in April and said it would make the UK a global hub for crypto firms.
But in its consultation paper today, the Treasury said the recent market crash had underlined the need for regulation.
“Since the initial commitment to regulate certain types of stablecoins, events in crypto asset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks,” the consultation said.
Stablecoins are supposedly pegged to the value of real world assets and are often backed by real-world stores of value, with currencies like Tether backed in part by dollar reserves.
However, the concept was rocked in recent weeks when Terra USD, an algorithmic stablecoin designed to track the value of the US dollar, broke its mooring and plunged in value this month, sending shockwaves through the crypto ecosystem.
Tether, the world’s largest stablecoin, similarly dropped its peg to the dollar after more than $3bn token left the system in a single day.