A stablecoin is a cryptocurrency designed NOT to be volatile. Unlike Bitcoin or Ethereum (which swing 10-50% in weeks), stablecoins are pegged 1:1 to a traditional currency, usually the US dollar. USDT (Tether), USDC (Circle), and DAI are the biggest, collectively holding $150+ billion.
From 2026, the UK's Financial Conduct Authority regulates stablecoins under the expanded Financial Services and Markets Act 2000. This means UK-based issuers of fiat-backed stablecoins must:
- Hold 100% reserves in approved assets (cash, short-term gilts)
- Undergo regular audits of reserve backing
- Register with the FCA and meet capital requirements
- Provide redemption rights (holders can convert back to GBP/USD on demand)
Why the UK regulator cares
Stablecoins are increasingly used as payment rails, not just for crypto trading but for cross-border remittances, payroll, and B2B settlements. If a stablecoin with millions of UK users suddenly "de-pegs" (like TerraUSD in 2022, which lost 99% in days), the financial damage to consumers requires regulatory protection.
What this means for UK users
- FCA-authorised stablecoins come with consumer protections (like deposit insurance for banks)
- Unregulated offshore stablecoins may face marketing restrictions in the UK
- UK stablecoin issuers must segregate customer assets (no commingling with company funds)
- Tax treatment: stablecoins are treated as crypto-assets for CGT purposes, but stablecoin-to-stablecoin swaps (e.g., USDT → USDC) may still trigger taxable events
