Coinbase Executive urges UK to reconsider Sterling Stablecoin Caps

Coinbase warned that tight caps on stablecoins could stifle innovation. Tom Duff Gordon told the House of Lords Financial Services Regulation Committee, Coinbase Vice President of International Policy that if the UK’s rules are too restrictive, it could lead to the UK falling behind. The details of London’s regulatory framework, he said, will determine the financial prominence London has in the coming decade.

Duff Gordon emphasized the Bank of England plan to limit personal holdings at PS20,000, and corporate holdings at PS10million. These thresholds, he argued, are not enough for stablecoins as a settlement infrastructure to be meaningful.

He stressed that these limits may prevent stablecoins to facilitate tokenized gilt and bond transactions in an efficient manner. Sterling stablecoins may struggle to be relevant in the capital markets.

Five recommendations for a competitive framework

Duff Gordon made five recommendations during the hearing to improve the UK’s stablecoin framework. Duff Gordon called for the removal of holding limits, an increase in reserves for short-term UK Government debt and the ability to settle stablecoins wholesale.

He also encouraged the regulators to harmonize rules globally and allow platforms such as Coinbase to offer rewards to stablecoin owners. The measures are designed to improve usability and maintain financial stability.

He noted that stablecoins could reduce the cost of international transactions and speed up domestic payments. Stablecoins are a cost-effective alternative to card rails. They offer instantaneous settlements at low costs.

Tokenized cash instruments will also be required to move real-world assets on blockchain networks. Stablecoins denominated in sterling could increase the global importance of the pound, and challenge the dominance currently held by dollar-pegged tokens.

Ensure Stability and Implementation Practical

Duff Gordon recognized potential risks to financial stability, but highlighted the differences between traditional banks. Stablecoins, unlike banks, are reserved in full and do not undergo maturity transformation. This makes runs and other problems less common and severe. Bank of England’s proposed liquidity service would enable issuers of high-quality, liquid assets to exchange them for cash in times of stress. This will prevent forced asset sales.

Keith Grose (CEO of Coinbase UK) stressed that the practical application is important. To keep activity in the UK, it is important to have clear authorizations, reasonable rules and a reliable banking connection.

If there is no clarity in the regulations, companies may decide to move their operations overseas. A well-designed regulatory framework could foster innovation and maintain trust while ensuring the UK’s competitiveness in digital payments.