A stablecoin is a cryptocurrency designed to maintain a stable value relative to a reference asset, most commonly the US dollar or pound sterling. Unlike volatile cryptocurrencies such as Bitcoin, stablecoins aim to provide the benefits of digital assets — instant settlement, programmability, borderless transfer — without the price volatility that makes traditional crypto unsuitable as a medium of exchange or store of value.
Under the FCA's new cryptoasset regime (effective from 30 September 2026), stablecoins are regulated as a distinct subcategory of cryptoassets. Issuers of 'significant stablecoins' — those with circulation above specified thresholds — must hold full backing by high-quality liquid assets at a 1:1 ratio with the value of all issued stablecoins. The final FCA rules halved the proposed capital requirement from 2% to 1% of circulating value, a significant concession following industry consultation.
Stablecoins fall into two main categories: fiat-backed (collateralised by cash or cash equivalents held in reserve, e.g., USDC, USDT) and crypto-backed (collateralised by other cryptoassets, often over-collateralised to absorb volatility). The FCA regime applies most stringently to fiat-backed stablecoins issued in or from the UK, requiring FCA authorisation, regular reserve audits, and compliance with Consumer Duty obligations.
Real-World Example
A UK-based fintech issues a GBP-pegged stablecoin, Digital Pound Token (DPT). Under the FCA regime, the issuer must: (1) hold at least £1 of cash or high-quality liquid assets for every 1 DPT in circulation, (2) maintain a 1% capital buffer of total circulating DPT value, (3) submit monthly attestation reports of reserves to the FCA, and (4) clearly disclose that holding DPT is not covered by FSCS. If the issuer's DPT circulation reaches £500 million, the capital buffer requirement would be £5 million, plus full £500 million reserve backing.