Recently, many crypto enthusiasts have been worried about how stablecoins will develop shortly. That is why many are trying to create theories to support them and save them from collapse. So, Her Majesty’s Treasury issued a document for public consideration, which involves introducing additional measures to protect against the collapse of “stable coins.”
What is a stablecoin?
Stablecoin is a special kind of cryptocurrency. Their main difference is that the value of such assets is tied to some support to stabilize the weight. The fact is that the price of classic cryptocurrencies is constantly jumping. On the one hand, this is good, as it allows you to make good money on trading. But on the other hand, this leads to the fact that they are poorly suited for holding assets and paying for goods and services.
As a result, it was decided to create a more stable asset tied to the value of fiat currency or commodities (precious metals or stones, oil or technology). Most often, stablecoins are connected to the US dollar.
What is the UK government offering?
Recently, the UK government has created a document (you can read it by clicking on the link) that provides recommendations for the Central Bank, which would help keep stablecoins from collapsing in the future.
The fact is that residents of the UK are increasingly using cryptocurrencies, particularly stablecoins, to perform various transactions, including international ones. Therefore, the collapse of a popular stablecoin can bring many problems.
It recommended delegating authority to the Bank of England to address a potential systemic disruption to stable coin issuers, digital wallet providers, and third-party payment processors.
The discussion will merge before the beginning of August. This will then be voted on by Parliament. During this period, those who wish can make various proposals and express their opinion on certain points of this document. If everything is in order, then there will be no more problems with the adoption of these suggestions.
Why is it so important?
Recent events indicate that such a document is very timely. The thing is that stablecoins are now going through hard times.
On May 8, the algorithmic stablecoin TerraUSD lost its peg to the US dollar. After 2 days, the asset quotes fell below 0.62 USD. The fall continued the next day, after which the Luna cryptocurrency used to issue UST fell to 0.3 USD. It has led to massive unrest from crypto enthusiasts. Of course, an attempt was made to save the situation as part of the re-release of the project. It failed.
The market reacted to the collapse of UST with a fall. The price of Bitcoin dropped to the level of 26,700 USD, which is comparable to the level of the end of 2020. The USDT stablecoin also briefly lost parity against the USD but was able to return to previous positions quickly. Other stablecoins were largely unaffected.
The situation has returned to normal, but Luna and UST holders have lost their assets. It is assumed that the problem will normalize in the future, and various cryptocurrencies will again begin to show steady growth.
The world of cryptocurrencies is now going through hard times. However, various large corporations and governments of different countries are trying to support this industry. It is assumed that if everyone acts consistently, the situation will normalize soon.
So far, the world community has not had time to evaluate the document proposed by the British authorities, but this is expected to happen in the near future.