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The UK's market regulator is paying close attention to the chaos in the markets after the collapse of Terra, one of the biggest experiments in decentralization finance.
Sarah Pritchard, executive director for markets at the watchdog, said that the recent market instability in stable coins will need to be taken into account when the watchdog starts working with the Treasury to develop and implement new rules for cryptocurrencies later this year.
The consequences and some of the issues that can arise are what we have seen with innovation. The Opinium survey showed that 70% of adults that are 40 or younger thought that digital assets were regulated.
In the wake of the collapse of TerraUSD, a stable coin which used swaps with its sister token Luna to maintain its peg to the US dollar, Pritchard made comments. The two token had a combined market value of more than $40 billion before the wipeout.
Stablecoins are used by traders to retain a flat value without having to convert their token back into currency. They can be used as a safe haven for investors during periods of volatility or as a means of digital payment.
It shows the significant issues that exist here, both in terms of a well-functioning market and obviously consumer protection.
The Treasury said in April that it would amend existing legislation to include stablecoin issuance and the provision of wallet as well as custody services. If their services are used by a large number of consumers, firms that are involved in stable coin activities might need to be supervised by the Bank of England and the FCA.
The UK's pitch to win back cripto firms has become a key part.
The only thing the FCA has done so far is to make sure that the companies meet their standards. Only 34 of more than 100 applicants met the bar in the effort to bring the industry up to scratch. The Financial Services and Markets Bill will give the UK watchdog new powers to regulate the industry later this year.
The event was held to listen in on the changes. The two-day event was attended by around 100 participants, including the CEO of the regulatory agency, as well as industry bodies, investment banks and firms from across professional services. More than 630 people applied for the session, which was significantly oversubscribed.
According to two attendees who were not authorized to speak publicly about the event, topics that were discussed during the event included whether or not the FCA should create a regulatory regime for cryptocurrencies and its ability to enforce rules across geographical borders. They said that participants were concerned about the pace of releasing new regulation. They were worried about the current environment of exchanges acting as a defacto guardian for riskier areas when determining which token is suitable for listings.
The event was positive, with two virtual sprints to follow in early June, according to a spokesman with the FCA.
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