Key Takeaways
Why is the U.K.’s new proposal bad for stablecoins?
Per Kulechov, the reserve model and holding restriction would repel issuers
What’s the status of pound-backed stablecoins?
They rank 10th on the stablecoin market, and the proposal would do less to improve their standings.
The Founder of DeFi lending protocol Aave [AAVE], Stani Kulechov, has slammed the recent U.K. proposal to cap stablecoins at £20k and limit yield-bearing reserves to only 60%.
In an X post, Kulechov warned that if the country proceeds with the “misguided” plan, stablecoin issuers would likely give it a pass. He quipped,
“That (60% yielding assets) makes pound-backed stablecoins inefficient, uncompetitive, and unattractive compared with global alternatives.”
For Kulechov, however, the plans could dent the pound-based stablecoin growth potential. He added,
“HM Treasury is likely to copy this approach, turning the UK into one of the least appealing places to issue a stablecoin. This is another misguided move by the Bank of England.”
Source: X
GBP vs U.S dollar-backed stablecoins
For comparison, the U.S. doesn’t limit the amount of reserve assets that are investable in yield-bearing products, such as T-bills. The only key prerequisite is a 1:1 backing for the issued stablecoin.
The business model is lucrative due to the yield. Tether, the USDT issuer, for example, has made $10B in YTD profits because of this viable model. About 77% of USDT reserves are parked in T-bills and cash equivalents.
Now, some players plan to lobby the U.K. government to relax the restrictions, perhaps to mirror the U.S. stance and remain attractive.
That said, the US dollar enjoys a massive moat due to its global reserve standing, as evidenced by its substantial foreign reserves.
The macro moat behind USD dominance
According to the IMF, as of 2025, the USD controlled 58% of global foreign reserves, followed by the Euro (6%) and the Great British pound, GBP (5%). The Chinese Renminbi came in fourth at 2%, but has been growing steadily.
Source: IMF
Put differently, offshore demand for USD is huge compared to GBP and would cap the growth of pound-backed stablecoins.
A similar stance was recently shared by Chuk Okpalugo, former Product Lead at stablecoin issuer Paxos. In fact, he said that “people don’t want stablecoins, they want U.S. dollars,” especially in the emerging markets.
As of writing, the USD-backed stablecoin commanded 99.8% ($303.7 billion) of the stablecoin market share. Euro-backed products came in second, while the pound-backed segment ranks 10th with only $341k worth of assets.
Source: Artemis
