In the UK, proposed measures to protect against the collapse of stablecoins

Her Majesty’s Treasury has put up for public comment a document introducing additional safeguards against the collapse of stablecoins.

The agency recommended delegating authority to the Bank of England to address a potential systemic disruption to stablecoin issuers, digital wallet providers and third-party payment processors.

“This will allow it [the Central Bank] to fulfill its statutory role in relation to financial stability,” the document says.

The Treasury stressed the importance of ensuring “effective application of the existing legal framework for risk management” in the event of a digital asset issuer going bankrupt.

The discussion of the document will last until August 2, after which it will be considered in parliament.

The authorities proposed the initiative after the collapse of the Terra ecosystem. On May 8, the algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar.

On May 10, the quotes of the asset fell below $0.62. The fall continued on May 11, after which the LUNA cryptocurrency used to issue UST fell to $0.3.

The market reacted to the collapse of UST with a fall. On May 12, the price of bitcoin dropped to $26,700, which is comparable to the level of the end of 2020. On the same day, the USDT stablecoin briefly lost parity against the US dollar.

Earlier, the Treasury announced plans to legalize stablecoins and issue its own NFTs. The move is intended to designate the UK as a digital asset-friendly jurisdiction.

In mid-May, the agency ruled out the legalization of algorithmic stablecoins because they “do not guarantee stability.”

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