UK Treasury sets out to bolster stablecoin protections following Terra crash

The UK’s Treasury on Tuesday published an initial consultation on managing “systemic failure” in digital assets, proposing bolstered protections related to stablecoins. 

It recommended that regulation be put in the hands of the Bank of England, which would have “powers of direction over an appointed administrator” should a so-called digital settlement asset (DSA) fall into trouble.

“This role will enable it to pursue its statutory role with regard to financial stability,” the consultation document said, adding that it’s “important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA firms.”

The Treasury’s call for responses closes August 2 and will be considered by parliament in due course. The UK’s Financial Conduct Authority also has plans to scrutinize the fallout following this month’s crash. 

The move comes just weeks after the death spiral of Terraform Labs’ algorithmic stablecoin TerraUSD — known by its ticker UST. The stablecoin broke its peg to the US dollar in early May, destroying more than $40 billion in market value as its related token luna entered free fall. 

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