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UK: Stablecoins And The Potential Of A Global Cryptocurrency

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BCL senior associate Hannah Raphael’s latest cryptocurrency
article has been published by LexisNexis, covering the potential
launch of new digital cryptocurrencies called ‘Global
Stablecoins’ and their potential impact.

Here’s an extract from the article:

“What are global stablecoins and how do they
work?

The term ‘global stablecoin’ is relatively new. It
was introduced for the first time in the report titled, ‘G7
Working Report on Stablecoins’ published on 18 October 2019 by
the Bank of International Settlements. The report was commissioned
following Facebook’s announcement to issue its own
cryptocurrency, Libra.

Stablecoins are a type of cryptoasset whose value is
stabilised via a number of different mechanisms. The most common
type of stablecoin is one that is pegged to a fiat currency,
usually the USD, or a basket of fiat currencies.

Other kinds of stablecoins include those that are backed
by:

  • commodities, for example gold or
    oil
  • a basket of
    cryptoassets
  • algorithms designed to maintain
    the supply of the coin

In essence, stablecoins are an effort to combine the best
attributes of fiat and crypto, by offering the instant processing
and the security of payments offered by crypto and the stable
valuations offered by fiat.

A stablecoin built on an already enormous and international
customer base (such as Facebook’s) would have the potential to
scale rapidly to achieve global coverage, and in so doing would
become what the Bank of International Settlements has called a ‘Global Stablecoin’ (GSC).

How are stablecoins characterised for the purpose of
regulation?

Although stablecoins have a common purpose, they can vary
greatly in their structure and arrangement and therefore
classification must be made on a case by case basis. In the UK
cryptoassets are regulated by the Financial Conduct Authority
(FCA).

The FCA’s ‘Guidance on Cryptoassets Feedback and
Final Guidance to CP 19/3’ categorises cryptoassets into
separate types of token. According to the guidance, many
stablecoins backed by fiat currencies will be e-money
tokens—some will be security tokens and others may be neither
one or the other. Characterisation will depend upon a careful
analysis of the structure that attaches to the token and the nature
of its underlying assets.”

This article was originally published by LexisNexis on
06/01/2020. You can download the pdf or read on their site.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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