2024 marked a pivotal year for stablecoins, characterised by significant growth in market capitalisation, transaction volumes, and diversification across blockchain networks. These developments underscore the evolving role of stablecoins in the global financial ecosystem.
Although the US dollar (USD) has dominated the stablecoin market since its inception, appetite globally is increasing for non-USD stablecoins, and in particular for a GBP stablecoin. Recognising this opportunity, Agant is setting out to create a UK-domiciled, UK-regulated stablecoin (GBPA) that could reshape financial transactions for institutions and businesses alike. This blog, based on a recent interview between Andrew MacKenzie, Founder of Agant and Sean Kiernan, CEO of Greengage, for award-winning podcast The Gage, discusses why a digital Pound stablecoin is needed and what the demand drivers are for introducing a GBP stablecoin in the UK.
The Need for a GBP Stablecoin
Despite the British Pound being the fourth-largest currency in the world, there has yet to be a successful GBP-denominated stablecoin. Inspired by some of the discussions and roundtables that he’s attended with the Bank of England and the FCA, Andrew sees an opportunity to bridge this gap. His previous experience in cross-border agricultural payments highlighted inefficiencies in traditional finance, particularly in settlement times and accessibility.
Stablecoins offer a compelling alternative by providing near-instantaneous transactions, reducing volatility, and eliminating intermediaries: “The success of stablecoins like Circle’s USDC and Tether (USDT) globally is evident, yet there’s a clear absence of a similar solution for GBP,” MacKenzie notes. “It doesn’t make sense that one of the world’s leading currencies isn’t properly represented in the digital asset space.”
The Value Proposition of GBP Stablecoins
At its core, a stablecoin is a digital asset whose value is pegged to a reference currency or basket of assets. It minimises volatility while acting as an efficient settlement instrument for on-chain transactions.
The introduction of a GBP stablecoin presents a slew of potential benefits to the UK:
The Case for Institutional Adoption
While stablecoins have traditionally been associated with retail crypto trading, institutional adoption is now at the forefront. Many financial institutions are recognising the advantages of stablecoins in reducing counterparty risks and improving capital efficiency.
MacKenzie highlights that as financial markets mature, stablecoins will increasingly be seen as reliable settlement instruments, particularly for financial firms that deal in both USD and GBP. These institutions often face conversion risks and inefficiencies that can be mitigated through a native GBP stablecoin: “We’ve seen an industry shift where stablecoins are no longer just a crypto-native tool but a legitimate means of facilitating large-scale financial transactions,” MacKenzie says. “With the right regulation and institutional backing, a GBP stablecoin could provide the same trust and utility that USD stablecoins currently offer.”
Cross-Border Payments & FX Innovations
One of the most exciting use cases for stablecoins lies in cross-border payments. Currently, transactions between the UK and other regions often involve lengthy settlement times and high FX costs. A GBP stablecoin paired with a digital Euro could create a seamless and efficient alternative, allowing for real-time currency swaps with minimal fees: “FX on-chain is an incredibly promising development,” MacKenzie notes: “Imagine instant conversion between GBP and EUR, reducing spreads and fees while improving accessibility for both businesses and individuals.” The use of blockchain rails for FX transactions could eliminate the reliance on traditional banking intermediaries, significantly cutting costs and improving transaction transparency.
Stablecoins vs. CBDCs: Complementary or Competitive?
With Central Bank Digital Currencies (CBDCs) gaining traction globally, there is an ongoing debate about whether privately issued stablecoins will coexist with government-backed digital currencies. MacKenzie believes both can serve distinct purposes: “Every country will likely have a CBDC, especially for wholesale transactions,” he states. “However, at the retail level, there’s a trust issue with government-issued digital currencies. People are more comfortable with privately issued stablecoins operating under clear regulatory frameworks.”
He draws an analogy to social media, where many individuals are more comfortable sharing data with private companies than with government-run platforms. Similarly, stablecoins can provide the benefits of digital finance while maintaining a level of independence from direct government control.
The Role of Public and Private Blockchains
An important consideration for any stablecoin is the choice of blockchain infrastructure. While Agant is building on public blockchains to ensure accessibility and liquidity, MacKenzie acknowledges that private networks could also have a role in specific use cases: “Some financial institutions may prefer private blockchain-based networks for closed-loop systems,” he explained. “For example, a company like Starbucks could implement a private blockchain for its internal payment ecosystem, effectively creating a stablecoin-like experience for its customers.” However, he emphasises the need for interoperability, ensuring that stablecoins can be used across multiple networks without friction. “Users shouldn’t need to worry about whether they’re transacting on Ethereum, Solana, or any other blockchain. The goal should be seamless movement of funds between different platforms.”
The UK’s Role in Supporting Stablecoin Innovation
As the UK continues to position itself as a global fintech leader, regulatory clarity will be key to fostering stablecoin innovation. MacKenzie stresses the importance of clear, consistent standards that provide businesses with a framework for compliance: “The UK has a deep talent pool in fintech, and we need to ensure that these innovators remain here rather than being drawn to jurisdictions with looser regulations,” he says.
“Regulation isn’t bad – on the contrary, it’s the uncertainty arising from an absence of clear regulation that is currently stifling innovation. If the UK can create a clear pathway for stablecoin development, we’ll see tremendous growth in this space.”
MacKenzie advocates for regulatory sandboxes in which stablecoin projects can test their models under real-world conditions, allowing policymakers to observe and refine regulations accordingly. “We need an environment that encourages experimentation, accepts that mistakes will happen – whilst managing and mitigating them effectively – and focuses on learning and improving.”
Looking to the Future
As the digital finance landscape matures, GBP stablecoins have the potential to revolutionise payments, cross-border transactions and institutional finance. With the right regulatory support and industry collaboration, they could become as ubiquitous as their USD counterparts.
With financial markets evolving rapidly, the UK has a unique opportunity to lead the way in stablecoin adoption. The question is perhaps not whether GBP stablecoins will take off, but rather how quickly they will become an integral part of the financial ecosystem.
To learn more, listen to our podcast series, The Gage Episode 35.
