Concerns Over U.K. Regulations for GBP Stablecoins

Stani Kulechov believes that reserve models and restrictions on holdings would deter stablecoin issuers.
The current U.K. regulations would do little to improve the market ranking of GBP stablecoins, which are currently 10th in the stablecoin market.
The Aave founder critiques the U.K.'s proposal to limit stablecoin backing and yield-bearing reserves, suggesting it could drive issuers away.

Key Takeaways

Stani Kulechov believes that reserve models and restrictions on holdings would deter stablecoin issuers.
The current U.K. regulations would do little to improve the market ranking of GBP stablecoins, which are currently 10th in the stablecoin market.
The Aave founder critiques the U.K.'s proposal to limit stablecoin backing and yield-bearing reserves, suggesting it could drive issuers away.

The founder of the decentralized finance (DeFi) lending protocol Aave, Stani Kulechov, has expressed strong disapproval of the recent U.K. proposals that suggest capping stablecoins at £20,000 and restricting yield-bearing reserves to just 60%. In a post on X, Kulechov voiced his concerns that if these regulations go through, many stablecoin issuers could choose to avoid the U.K. altogether. He remarked, “That (60% yielding assets) makes pound-backed stablecoins inefficient, uncompetitive, and unattractive compared with global alternatives.”

Kulechov also indicated that these proposed measures could hinder the growth prospects for pound-backed stablecoins, stating, “HM Treasury is likely to adopt this strategy, making the U.K. one of the least appealing locations for stablecoin issuance. This is yet another misguided decision by the Bank of England.”

U.K stablecoins Source: X

U.K. stablecoin

Comparing GBP and USD-backed Stablecoins

In contrast to the U.K.’s proposed restrictions, the U.S. does not impose limitations on the types of reserve assets that can be invested in yield-bearing products, such as Treasury bills (T-bills). The primary requirement is a 1:1 backing for the stablecoins issued. This model has become financially attractive due to the yields it generates. For instance, Tether, the issuer of USDT, has reported profits of $10 billion year-to-date, largely thanks to this strategy, with around 77% of USDT reserves held in T-bills and cash equivalents.

In response to the U.K. proposal, some industry players are considering lobbying the government to relax these restrictions in order to emulate the flexibility seen in the U.S. However, it is essential to note that the U.S. dollar holds a significant advantage due to its status as a global reserve currency, which is evident from its extensive foreign reserves.

Understanding the Dominance of the USD

According to the International Monetary Fund (IMF), as of 2025, the U.S. dollar accounts for 58% of global foreign reserves, followed by the Euro at 6% and the British pound at 5%. The Chinese Renminbi ranks fourth at 2%, although it has been steadily increasing in prominence.

UK stablecoins Source: IMF

This illustrates the exceptionally high offshore demand for USD, which limits the growth potential of pound-backed stablecoins. This viewpoint was echoed by Chuk Okpalugo, a former product lead at the stablecoin issuer Paxos, who noted that “people don’t want stablecoins; they want U.S. dollars," especially in emerging markets.

As of the current reporting, USD-backed stablecoins dominate the market, holding 99.8% ($303.7 billion) of the total share. Following them are Euro-backed products, while GBP-backed stablecoins rank low at 10th place, with just $341,000 in assets.

U.K. stablecoin Source: Artemis