UK Treasury Prepares to Legalize Stablecoins Amid Terra’s UST Crash

The U.K. Treasury (HM Treasury) has reportedly decided to continue regulating stablecoins as legal tender. While welcomed by the crypto community, the decision comes as a shock as one of the most popular algorithmic stablecoins, TerraUSD (UST), has recently suffered a sharp drop.

A local report from The Telegraph highlighted the U.K. Treasury’s intentions to regulate stablecoins, revealed in Queen’s Speech. In his speech, Prince Charles announced new legislation in a number of areas, including measures to drive economic growth to improve living standards in the region, adding:

"A bill will be introduced to further strengthen the fight against illicit financing, reduce economic crime and help businesses grow [the Economic Crime and Corporate Transparency Act]."

Reporting on April 4, Cointelegraph called attention to the United Kingdom’s Ministry of Economy and Finance, which cited amendments to its existing regulatory framework to include stablecoins as a means of payment.

While the recent collapse of the Terra ecosystem - with LUNA and UST suffering irreparable falls - is expected to draw warnings from regulators, HM Treasury is sticking to its line "to ensure the UK financial services industry remains at the forefront of technology and innovation , as Chancellor of the Exchequer Rishi Sunak said earlier.

However, the HM Treasury’s plan does not involve the legalization of algorithmic stablecoins, but instead favors stablecoins that are fully pegged 1:1 to fiat currencies, such as Tether (USDT) or USD Coin (USDC). A spokesman for the Treasury said:

"Legislation to regulate stablecoins as a means of payment will be part of the Financial Services and Markets Act announced in the Queen's Speech."

By legalizing stablecoins in the UK market, HM Treasury aims to open up opportunities for growth while ensuring financial stability when new financial technologies are introduced. The spokesperson highlighted the fact that the value of Terra’s UST token is pegged to another cryptocurrency, saying:

“The government has made it clear that certain stablecoins are not suitable for payment purposes because they share the same characteristics as unbacked cryptoassets.”

U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce recently emphasized the need to allow “room to fail” while supporting a stablecoin regulatory framework.

Speaking in an online roundtable discussion, Peirce mentioned the growing interest of regulators in stablecoins. As reported by Cointelegraph, Peirce urged the U.S. SEC to provide exemptions for certain technologies, which she said would allow necessary experiments to take place:

"We need to make room for failure because that's obviously part of trying new things, and our framework does allow for that trial and error. I hope we use it for that."

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