What the FAQ!? Stablecoins

Q. There are fewer topics hotter right now in the world of finance than stablecoins.  What the FAQ are they?

FAQ: Stablecoins are a type of digital asset designed to maintain a stable value, typically by means of:

• pegging their value on a 1 to 1 basis to a real world currency (such as the US dollar);
• pegging to units of a real world asset (such as gold or real estate); or
• some kind of algorithm (involving – for instance – minting new coins and burning existing coins to control supply and demand and thereby maintaining a stable value).

Q. Digital assets…?  You have lost me already FAQ…

FAQ: I am so sorry Q. Digital assets is a catch all term for intangible things that exist in digital format and are stored, transferred and managed electronically.

In the UK, digital assets can create personal property rights.  Think of bitcoin and ether, and other forms of cryptocurrency.  NFTs are digital assets.  So too are stablecoins.

Here is a detailed piece from 2024 and by HLaw on the subject: The hard problem of digital assets: why new UK legislation changes little and leaves the Courts to decide by analogy only – Humphreys Law.

Q. OK thanks, I’ll read it.  Love HLaw content!  Back on topic though, what does one do with a stablecoin if one happens to have one?

FAQ: I refer you to the words of Andrew Bailey, Governor of the Bank of England, writing in the Financial Times on 1 October 2025: “Stablecoins — where widely used in the real economy — are intended to be money, in the sense that they function as a medium of exchange and payment. As such, they enable the comparison and exchange of value and thus support the price system.”

Other definitions are available and the precise descriptive consensus is yet to be formed.

Q. OK so stablecoins are like money, and are a medium for exchange and payment.  We already have actual money for that though!  Why is there such a lot of ‘noise’ at the moment about stablecoins?

FAQ: As ever, many reasons and it’s complicated.  Cryptocurrencies are (or have been to date) inherently volatile as to their values when compared to fiat currencies…

Q. You have lost me again FAQ.  Fiat…?

FAQ: Sorry Q yes, fiat currencies – national currencies backed by the relevant government and a central bank, such as the US dollar or the UK’s sterling or Japanese yen, and so on.  Fiat – “fee-aht” – means “let it be done” in Latin or “by decree”. 

Governments decide that a currency is to be used, central banks support that, and in extremis there are the courts, the police, the military, and so on to back them up.

Q. Thanks: if you keep throwing jargon at me I can’t follow and I did not study Latin at school.

FAQ: My apologies. Where were we? Oh yes, why are people talking about stablecoins? Well, at a very high level indeed, on the one hand we have stable (relatively) fiat currencies that can be spent in the real world and are the mainstay of the global financial system but come with intermediaries, fees, political influence and so on.

Q. Got it.  And, historically, crypto people have pushed against the traditional finance systems.  It’s a cliché but they say they are slow, full of friction, controlled by governments the people can’t trust, prone to inflation and devaluation, and so on.

FAQ: Yes, that kind of thing.  On the other hand, we have cryptocurrencies that are (in theory at least) free from political influence, don’t involve intermediaries, can have a genuinely limited supply, and attract much lower transaction costs, but which are volatile as to value and are hard to spend in the real world.

Stablecoins are a bridge between fiat and crypto, between the old and the new in finance.

Q. Thanks, I have just about followed that. What are stablecoins used for specifically?

FAQ: They can be a store of value in and of themselves, and used for investing, trading and hedging.  Since they are supposed to be stable in value, they can be used in the crypto world in a similar way to cash.

Paying for goods and services using stablecoins can mean faster settlement and lower fees compared to credit cards, although you won’t get far right now if using stablecoins to pay for the weekly shop or your morning latte.  One day, perhaps.  And that said, you can’t use a ten pound note to buy certain items in the world of Web3.

Q. Sounds a bit niche to me.  Is this another one of those tech things where it is very complicated and exciting but there is no real world use case for it and it’s a bit of a hype bubble?

FAQ: No, I don’t think so.  Cross border payments and remittances are where stablecoins have already gained a foothold in the global financial system.  Sending money abroad is famously cumbersome and eye wateringly expensive.  Stablecoins allow for the same service at a fraction of the cost.

In countries where the local fiat currency is volatile and savings in it are at risk from high inflation or devaluation by the government, stablecoins can be an attractive store of value locally.   That is happening right now in jurisdictions such as Argentina, Nigeria, and elsewhere.

As ever with new concepts and technology, other use cases spring up all the time and there are many other types of transaction in which they could be used.  Much publicised has been discussion as to whether that could include bank-to-bank settlements that move away from the famously archaic and expensive legacy banking rails in many jurisdictions.

Q. Thank you, yes I understand – payments globally is big business.  What is the global stablecoin market worth right now?

FAQ: That depends a bit on how you define a “stablecoin”, but perhaps the value of all stablecoins in existence is somewhere in the region of US$250 to 300 billion.  In September 2025, J.P Morgan reported that “the U.S. dollar-denominated stablecoin market, which makes up around 99% of the global stablecoin market, has grown to $225 billion, accounting for roughly 7% of the broader $3 trillion crypto ecosystem tracked by J.P. Morgan Global Research.”

Q. Wow.  How does that compare for instance to the value of payments going through Visa and Mastercard?

FAQ: Great question, but you aren’t comparing apples to apples there.  Above we are talking about the value of the ‘stock’ of stablecoins – i.e. the number of stablecoins in existence x their nominal peg value (e.g. US $1).  I.e. their market cap.

Visa and Mastercard are only processing fiat payments.  We can though look at the values of what they are processing, i.e. the ‘flow’.  Visa alone processes something like US$15 trillion a year in payments and US$9 trillion for Mastercard.

Q. Oh I see – therein the opportunity: if stablecoins only take a small share of the market, then we are talking about some very serious numbers…

FAQ: Spot on Q.  McKinsey reported that in 2023 “the global payments industry handled 3.4 trillion transactions, accounting for $1.8 quadrillion in value and a revenue pool of $2.4 trillion.”  

Those numbers are forecast to increase year on year as the world continues to move online and people turn away from making cash payments.  A single digit market share for stablecoins will be worth trillions of US dollars.

Writing in 2025, McKinsey noted that “[c]urrently issued mostly in US dollars, stablecoin circulation has doubled over the past 18 months but still facilitates only about $30 billion of transactions daily—less than 1 percent of global money flows.”

Q. I can see why there is such excitement.  What are the rules?  Could I go out and launch my own stablecoin tomorrow?

FAQ: Not quite.  Regulators are working hard to keep pace with the technology.  The regulatory landscape is complicated and expensive to navigate.

If you are launching a stablecoin in the UK, stablecoins backed by fiat currencies or other assets will fall soon within the regulatory perimeter of Financial Conduct Authority and the Bank of England.  Issuance and custody will be regulated via amendments to the Financial Services and Markets Act 2000 and its Regulated Activities Order 2001.  You’ll need to be a FCA-authorised firm to launch a stablecoin backed by fiat currency – FSMA is to be amended to provide for a new regulated activity of issuing “qualifying fiat-referenced stablecoins”.

While the government has explored bringing stablecoin payments within the scope of the Payment Services Regulations 2017, it has decided not to amend the regulations for now. The current policy emphasis remains on the regulation of stablecoin issuance and custody, with the existing PSR/e-money protections not yet fully extended to stablecoin transfers.  The government’s policy note (April 2025) ) does however leave the door open for bringing payments using fiat-backed stablecoins within the payments framework.

The UK’s regime is still being developed and the rules are the subject of proposal papers such as FCA consultation paper CP25/14 and CP25/15.    CP25/14 covers the proposed framework for issuance and custody of fiat-backed stablecoins.  CP25/15 deals with wider crypto-asset market rules.  In general terms, the FCA intends to regulate qualifying stablecoins as money-like instruments (to be separate from e-money) rather than as investment products.

Other laws and regulations will apply, including in particular those around anti-money laundering and terrorist finance, prudential standards, consumer credit and protection, and so on.  Crypto exchanges and wallet providers for instance must already register with the FCA as anti-money laundering supervisor.

The Bank of England is expected to be given oversight of the systemic risk generally.

Q. Hasn’t the Bank had a lot to say about stablecoins recently…?

FAQ: Yes, and not without controversy.  The Bank of England published a discussion paper on stablecoins in 2023, and further announcements on systemic risk are expected.  Andrew Bailey, writing in that same FT article, says “The technology behind stablecoins is new. But, as we shape a regime that can put the UK at the forefront of exciting innovation, we should ask a question that has long been at the heart of central banking: how do we ensure the link between money (in whatever form) and credit creation as an underpinning for economic activity? That is the crucial goal here.” 

Not all of the response from the industry has been enthusiastic.   Bailey’s recent proposal to cap the value of stablecoins that can be held by individuals and business did not go down well within the crypto community.

Q. What about in the US and further afield…?

FAQ: In the US, the GENIUS (Guiding and Establishing National Innovation for US Stablecoins) Act has just been passed – “making America the leader in digital assets” – and comes into effect in 2026 to provide a federal framework for launching US-dollar-backed stablecoins.

While at federal level the GENIUS Act provides a regulatory framework, many details are still being worked out and enforcement may begin in late 2026–2027.  State level oversight still applies and already exists in New York and Wyoming for instance.

The EU has been an early mover and 2023’s MiCA Regulation has stablecoins as a core focus, and it’s already in force.

Further afield, Hong Kong has in 2025 published a Stablecoins Ordinance.

The UK has some catching up to do, but the government will shortly lay legislation before Parliament to regulate cryptoasset activities generally and which has been shaped by those FCA consultations on stablecoins.

Q. Sounds like heaven for regulatory lawyers!

FAQ: You got it.  What else do you want to know?

Q.Why the need for all that red tape…?

FAQ: Because when you’re talking about something that looks, walks and quacks like money, governments and regulators are going to care deeply about who issues it, how it’s backed, and what happens if it fails.

Stablecoins can move vast sums instantly and across borders, so they raise all the same concerns as banks and payment institutions — consumer protection, financial stability, fraud, and anti–money laundering, and so on.

Quite a few stablecoins have proved so far not to be so stable, especially the algorithmic ones.  Terra Luna crashed in 2022 and lost 99% of its value almost overnight.  When markets crash and people lose money, regulators and governments tend to take notice.

Regulators turn them to themes of insolvency, reserves, capital requirements, segregation of assets, yields, risk and disclosure, and so on.  Themes that are entirely familiar to anyone who has been working in traditional finance.

Anything else?

Q. That’s it for now FAQ, I need a lie down – thanks very much though.  Maybe I’ll come back and ask you some more questions when UK regulation develops a bit further.

FAQ: here as needed.  Sorry about the Latin.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website. None of the above constitutes legal advice and is not to be relied upon. Much of the above will no doubt fall out of date and conflict with future law and practice one day. None of the above should be relied upon. Always seek your own independent professional advice.

Humphreys Law