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Why has the Terra stablecoin broken its US dollar peg and should you care?

Mittwoch, Januar 26, 2022

stablecoin definition

In comparison, converting crypto-assets into fiat currency may take days. Gold-backed stablecoins have opened the doors to average individuals looking for global investments.

In addition, USDC can be used to make purchases on major exchanges and platforms, providing you with a convenient way to store and use your money. As the cryptocurrency markets continue to evolve, USDC is likely to become an increasingly popular option for investors. The unique characteristics of stablecoins and other cryptoassets means that they may fall outside the UK’s electronic money regime. To the UK government, this omission conflicts with the principle of “same risk, What is a Stablecoin same regulation”. Stablecoins are recognized as having the potential to rapidly develop into a widespread means of payment, in contrast to other forms of cryptoassets. In order to address the inherent risks this would pose – such as financial system stability and consumer protection – the UK government plans to bring stablecoins into its regulatory perimeter. This will be done mainly by amending existing regulations as opposed to creating new, stablecoins-specific laws.


These constant fluctuations mean there is no chance for stable pricing, and without stable value, accurately valued transactions can’t happen. This website is not intended for use in any jurisdiction where the trading or investments described are prohibited and should only be used by persons and in a manner permitted by law.

  • For organisations such as the Libra Association, which aims to increase financial inclusivity, the ability for users to transact other than through a VASP is an important requirement.
  • TerraUSD, or UST, began slipping from its intended 1-to-1 peg to the US dollar in early May when the mix of algorithms and trader incentives meant to safeguard the link failed to work as planned.
  • The safety of your personal information and funds is our top priority.
  • To help you navigate and control risk in a challenging legal landscape, we have collated a range of key advice and guidance.
  • For example, FATF expressed to G20 finance ministers that risks should be mitigated immediately especially if cryptos have the potential for mass adoption.
  • These risks are exacerbated where there is mass adoption of a stablecoin.

The bill may take some while to be implemented into primary legislation in the UK as it has only recently had its first reading, with the second reading due to come before Parliament on 7 September 2022. After the second reading, it will go to a committee to review and report upon before coming back before Parliament for the final third reading. Once completed, the process the repeats itself in the House of Lords before any amendments are considered and the bill receives royal assent to become UK legislation, doubtless supported by secondary legislation which is yet to be prepared.


In comparison to other assets like stocks, cryptos can be traded 24/7, which is helping to heighten the popularity of assets like stablecoins. The definition does not refer to https://www.tokenexus.com/ Distributed Ledger Technology or blockchain with HMT noting that this will future-proof the definition for innovations in the underlying technology that cryptoassets utilise.

stablecoin definition

Stablecoin companies are classed by the UK Government as systemic “digital settlement asset” firms. A large failure could have a significant disruptive effect on the economy, so the area requires robust statutory processes in place to manage any wind-down. While you can invest in cryptocurrencies, they differ a great deal from traditional investments, such as stocks and shares.

Stablecoin Types

USDC offers a degree of financial durability for those who invest in it. Here at AQRU, we enable you to harness that stability and use it to generate returns on your investment. With our easy-to-use platform, you can start earning interest on your USDC straight away. There’s no need to worry about the technical aspects of crypto – we take care of all the hard work for you.

stablecoin definition

Neither this Information nor any copy thereof may be taken or rented or redistributed, directly or indirectly, without prior written permission of GSR. A new breed of algorithmic stablecoins are attempting to solve the stablecoin trilemma and offer price stability, capital efficiency, and decentralization. We review various algorithmic stablecoin models and offer our thoughts in this week’s Chart of the Week. The USA has spearheaded much of the conversation around regulating stablecoins.

A sound regulatory approach for digital assets

The 335-page bill claims ‚to make provision about the regulation of financial services and markets; and for connected purposes‘. Charlotte Hill is a partner at international law firm Taylor Wessing and heads the Financial Services Regulatory group in London. She advises FinTech businesses such as digital challenger banks, payment services providers, electronic money institutions, cryptoassets businesses, and digital wealth managers.

Is Eth a stablecoin?

The most common types of synthetic stablecoins, such as DAI, are overcollateralized by other cryptocurrencies, such as ETH, USDC, and BAT. Newer models of synthetic stablecoins, such as Ampleforth's AMPL, use variable supply, meaning that an oracle monitors the supply and demand and “rebases” to meet a target peg.

Created by some of the same founders as Ripple, a digital technology and payment processing company, XRP can be used on that network to facilitate exchanges of different currency types, including fiat currencies and other major cryptocurrencies. Despite this, the lack of legislation and regulation has left many confused as to how to treat digital assets. The second reading of the Bill is scheduled to take place in September and royal assent is expected in early 2023. However, as described above, the Bill does not itself set crypto regulation. The Treasury will follow up with more detail on the intended use of its new powers to create the regulatory framework, with the Bank of England and the FCA consulting on the specifics of the relevant rules.

New Government consultation for cryptoasset regulation

In its revised white paper, the Association proposes that these types of users are subject to balance and transaction limits, as well as monitoring. It remains to be seen whether FATF thinks this is enough to counteract the risk, especially considering the obvious potential for mass-adoption. The Treasury is planning to bring certain activities relating to stable tokens into the FCA’s regulatory perimeter, whilst leaving those who do similar things with utility and exchange tokens outside. This will bring challenges for some, opportunities for others and, most likely, arbitrage. Executing transactions in stable tokens and exchanging tokens for fiat money and vice versa. Just like other cryptos, stablecoins may be taxable depending on how they’re used. Sales or exchanges may need to be declared with capital gains taxes potentially applied.

stablecoin definition

To help us improve GOV.UK, we’d like to know more about your visit today. Don’t worry we won’t send you spam or share your email address with anyone. Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. There is a geopolitical dimension as a CBDC comes with its own payment infrastructure. The absence of a digital euro may be feared as something which could weaken the strategic autonomy of the European Union, for instance. The UK has also recently acknowledged the importance of developing digial asset technologies.

Retail Investors

On one hand giving consumers and commercial entities a direct banking relationship with the Fed would undermine the commercial banking system, by reducing the level of bank deposits and the lending capacity of the banks. On the other hand, a Fed-issued currency mitigates systematic risk of private providers. We think regulators should take advantage of the transparent nature of distributed ledger technology in order to monitor reserve requirements, as these could be observed in real time. In terms of design, the stability (water-tight reserves) aspect will be dictated by regulation. Although the usability is the same, the reserving is very different. Tether’s stablecoins were found to have unwanted credit risk as a result of being 50% backed by commercial paper, as the pie charts below show.

  • Since its launch in 2017, Binance Coin has expanded past merely facilitating trades on Binance’s exchange platform.
  • Thus, Argentines have turned to stablecoins like DAI to safeguard their money.
  • USDC is a digital dollar that offers users the stablecoin benefits of price stability and ease of use.
  • Keep up to speed on legal themes and developments through our curated collections of key content.
  • The second variant is supported by assets in digital form, typically other crypto-assets.
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Author: William Edwards

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