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FCA, Stablecoins and the Future of UK Crypto Regulation

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I had the opportunity recently to participate in a roundtable organised by the UK’s Financial Conduct Authority, on the topic of stablecoin regulation. For those of you who don’t know, the FCA is the equivalent of the SEC in the UK. At the roundtable I represented the British Blockchain Association, that was kind enough to involve me in this process, owing to my expertise on the subject.

The topic of conversation revolved around a discussion paper released by the FCA. This is an excerpt from the paper:

The Treasury’s recent Policy Statement sets out their intention to define fiat-backed stablecoins in legislation, expecting it to capture those stablecoins which seek to maintain a stable value by reference to a fiat currency, and hold (in part or wholly) currency as ‘backing’. The Treasury is also considering making changes to the payments legislation to enable retail payments for goods and services to be made using fiat-backed stablecoins. 

Dr Kampakis before the FCA stablecoin roundtable begins

The discussion was interesting, but it felt that the regulator is dealing with a very difficult task. Algorithmic stablecoins are out of the question, as well as other forms of such as stablecoins such as partially collateralised stablecoins. The FCA is interested in stablecoins that are using fiat as a collateral, and are ideally, overcollateralised.

This is obviously not a very innovative stablecoin design. The big stablecoins, like Tether and USDC are very well established, and trying to regulate them now is a bit too little, too late. The only benefit of such stablecoins is ramps, and speed of payments.

However, what about partially collateralised stablecoins, that might be backed by a combination of crypto and fiat, such as BankX? At what point can Bitcoin, the most established crypto, be used as a collateral? Also, what happens in the case of flatcoins, like Janus? Is this classified as a stablecoin or not?

FCA stablecoin roundtable in action. Professor Naseem from the British Blockchain Association is raising his hand.

So, while the regulation is a step forward in the right direction, it still feels there’s a lot left to do. Nevertheless, regulators are known for being slow to respond. That’s part of their modus operandi, and when they do, they might over-react, as it happened with Binance.

My hope is that in the future, tokenomics auditing will become a mechanism that will be actively used by regulators, in order to better understand the risks of cryptocurrencies. However, until that day comes, if you are interested in knowing more about tokenomics design and auditing, make sure to get in touch.

Wanna become a data scientist within 3 months, and get a job? Then you need to check this out !