17 May 2022 Anthony Lehrman
UK To Consider Adding Stablecoins As A Form Of Payment
UK authorities don’t seem too worried about the latest development in the crypto sector, as the government is proposing several regulatory changes, which would lead to accepting stablecoins like Tether as a legal form of payment.
“Legislation to regulate stablecoins, where used as a means of payment, will be part of the Financial Services and Markets Bill which was announced in the Queen’s Speech,” a spokesperson from the UK Treasury noted, adding that stablecoins, due to their capacity will become widely used as a form of payment.
Furthermore, the UK government made a 12-month study, which found out that “an amended e-money framework can deliver a consistent framework to regulate stablecoin issuance and the provision of wallets and custody services.”
Volatile times ahead?
The move by the UK government seems counterintuitive to the latest crypto meltdown, which eradicated close to $500 billion of the total crypto market capitalization. The prime reason for the meltdown was the TerraUSD (UST) de-pegging to the U.S. dollar. Over the past week, almost all stablecoin projects saw a similar de-pegging, with Terra (LUNA) inflicting the most damage on the crypto market in a starting bearish cycle.
However, stablecoins were first introduced to capture the benefits of traditional cryptocurrencies, such as permissionless, peer-to-peer transfers, while addressing price volatility. The pegging, which was used for ensuring a stablecoin would be tied to the price of a given fiat currency.
Nevertheless, the way a stablecoin works can be differentiated between real fiat-backed stablecoins like Tether (USDT) and stablecoins, which are backed by a complex, self-executing algorithm, which ensures a stable price. The problem with algorithmic stablecoins, however, is that such currencies can be tumbled down by market forces. This was the case with TerraUSD when it tumbled from $1 to as low as $0.13 in just a few hours.
The rising concerns don’t seem to be a problem for UK lawmakers, as the government report emphasized that new regulations to facilitate the use of stablecoins in the country should “exclude … algorithmic stablecoins, or those that may be linked to assets other than fiat currency,” on the grounds that they “may not offer sufficient price stability.”
The case with real fiat-backed stablecoins, like Tether, proves that this type of pegging is far easier to revert in an event of a crypto meltdown.
UK’s Chancellor of the Exchequer, Rishi Sunak, stressed that his ambition is “to make the UK a global hub for crypto asset technology.”
“We want to see the businesses of tomorrow – and the jobs they create – here in the UK, and by regulating effectively we can give them the confidence they need to think and invest long-term,” Sunak added.
Other nations embracing stablecoins
Portugal, for example, may even surpass UK’s efforts into legalizing stablecoins as the Iberian country may soon and capital gains tax on crypto assets, which effectively puts them in line with stocks. However, the Portuguese government did not include a timeline for the tax implementation, nor the taxation mechanism, which would be implied.
Australia, on the other hand, already deployed such tax, which would become effective this season.
“The ATO is targeting problem areas where we see people making mistakes. Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year.” Assistant Commissioner Tim Loh said in a statement on May 15.
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