Can sterling stablecoins catch digital dollars in 2026? ‘This isn’t about competing,’ says CEO

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It’s the new year, and the UK’s financial regulator has declared stablecoins pegged to the national currency a key priority in 2026.

Meanwhile, the Bank of England has led its own consultations in parallel to better understand how private sector money issuance could affect the British economy.

But what does that mean exactly?

For some, it means avoiding the pitfalls that have slowed US policy makers.

“Stablecoins there have scaled quickly, but under fragmented oversight and unclear accountability,” Javed Khattak, co-founder and CEO of London-based digital identity provider Cheqd, told DL News.

“UK regulators and industry are likely keen to avoid repeating that pattern by setting clear expectations early, while the market is still small enough to shape responsibly.”

The Genius Act, the American landmark stablecoin legislation that codifies stablecoin issuance in US law, still has a ways to go before it is formally implemented.

That hasn’t stopped key industry players, such as Tether and Circle, from growing their respective stablecoins.

Tether’s UST is worth $186 billion, while Circle’s USDC boasts more than $72 billion, which makes up a combined 83% of the total $308 billion stablecoin market, according to DefiLlama.

As for the UK’s stablecoin market, it’s worth just over $5 million across three different products. Small indeed.

But for Khattak and others, it’s an opportunity to bake safety and competitiveness into these products from the very beginning.

“The UK has an opportunity to set clear, upfront rules that allow innovation while embedding safeguards early, rather than retrofitting regulation after adoption,” Benoit Marzouk, CEO and founder of the British stablecoin provider tGBP, told DL News.

“The expectation is that once the infrastructure layer is clearly regulated, usage by merchants, fintechs, and institutions can grow organically,” he said.

And between the FCA and the Bank of England, five key pillars are emerging regarding stablecoin rules in the UK.

Five key pillars

The first, put forward by the central bank, is to keep at least 40% of a stablecoin’s backing assets with the Bank of England and the remainder in higher-yielding gilts.

The second is that customers should be able to redeem one stablecoin for £1 in fiat by the end of a business day.

Third, the Bank of England has proposed a strict, controversial rule to cap the amount of stablecoins an individual can hold between £10,000 and £20,000. As for businesses, they would be capped at holding £10 million.

Fourth, stablecoin providers must operate using a legal trust so that if the company goes bankrupt, the money belongs to the owners of the stablecoins rather than the company’s creditors.

And finally, regulators in the UK are mimicking those in the US by prohibiting — at least for now — stablecoin issuers from dishing out yield to their holders.

The FCA declared that stablecoins used for payments, not investment, would be a top priority this year.

Dollar competition?

These rules would likely help avoid many of the pitfalls that have hit the dollar stablecoin market, including the collapse of Terra’s UST in 2022 and the digital bank run on Circle’s USDC when its reserves holder, Silicon Valley Bank, went bankrupt.

Still, trying to catch its digital dollar cousin is a tall order.

But for Khattak, that’s never been the objective.

“This is not about competing with the dollar, rather, ensuring the UK remains relevant as a leading global fintech and financial services hub as payments become increasingly digital,” he said.

With clear laws in place, however, institutions will certainly feel a lot more comfortable doing business.

Regulatory clarity that allows banks, payment service providers, and large merchants to participate without reputational or compliance risk,” Marzouk said.

Liam Kelly is DL News’ Berlin-based DeFi correspondent. Have a tip? Get in touch at [email protected].