UK Proposes Stablecoin Protection after Terra Crash


  • The proposal follows the algorithmic collapse of stablecoin TerraUSD, which lost its 1:1 peg with the US dollar.
  • The measure would provide the Bank of England more power over failed stablecoin users.
  • The Treasury will accept feedback on the consultation until August 2.

On Tuesday, UK’s treasury published a consultation paper mentioning the amendment of current legislation to recognize and address systemic failure in digital assets, proposing reinforcing the protection of stablecoins.

The news was shared by Bloomberg Crypto through a tweet:

The government talked about handling additional powers to the Bank of England, enabling it to oversee the administration of failed stablecoin issuers of systemic importance.

As per the proposal, UK’S current plans regarding the regulation of stablecoins would expand further, taking into consideration Terra’s collapse in May. The collapse wiped $40 billion plus off the value of its two major tokens. Furthermore, the recent crash regulators across the world looked worried and inclined towards ensuring that stablecoins backed by the US dollar do not jeopardize financial stability.

In its proposal, the treasury stated, “Since the initial commitment to regulate certain types of stablecoins, events in cryptoasset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks.”

In the coming months, UK’s Financial Conduct Authority has planned discussion regarding Terra’s failure with the Treasury. Just before the collapse, the government’s initial proposal for stablecoin regulation was announced in April.

As per the proposal, the UK would adjust its Financial Market Infrastructure Special Administration Regime to mention risks that may arise due to failures of stablecoins firms that are not registered as banks. FMI SAR would become the main default framework to manage stablecoin projects that have failed. Also, it would be tweaked to appropriately address risks related financial stability.

Stablecoin projects with possibility of risk would operate under the supervision of BOE. Talking about the smaller projects, they would be under the review of the FCA.

Last week, Today NFT News reported Terra Team Clears the Air with Ecosystem Revival Plan 2 upon its recent Terra crash.