SS #47 - UK Central Bank Proposes Strict Stablecoin Regime

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Good morning.

The global regulatory landscape for stablecoins is rapidly evolving, with recent developments in both the UK and Japan highlighting two fundamentally different approaches to integrating digital currency into established financial systems.

In the United Kingdom, the Bank of England (BOE) has proposed a stringent regulatory framework for systemic, sterling-denominated stablecoins. This regime introduces temporary caps on individual and business holdings and mandates specific asset backing rules, notably requiring a portion of reserves to be held in unremunerated BOE deposits. While crypto industry groups have criticized these measures as potentially stifling innovation and competitiveness, proponents argue that the strictness is necessary to establish long-term trust and safeguard the stability of the commercial banking sector.

Shifting focus to Asia, Japan's Financial Services Agency (FSA) has officially endorsed a stablecoin pilot project led by the nation's three major banks: Mizuho Bank, MUFG, and SMBC. This move signals a significant push to modernize corporate settlement processes and accelerate the adoption of a fully regulated, yen-denominated stablecoin. Unlike the UK's cautious, restrictive framework, Japan's approach is characterized by a coordinated, state-backed effort among its largest financial institutions to actively deploy stablecoins as a key component of future payment innovation.

These concurrent announcements underscore the global recognition of stablecoins as a crucial financial instrument, while illustrating a growing divergence in how major economies are choosing to manage their integration: one prioritizing stringent stability controls (UK) and the other focused on institutional adoption and payment efficiency (Japan).

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In Today's Edition:

• Headline: UK Central Bank Proposes Strict Stablecoin Regime

• Quick Bites: Japan’s Regulator Backs Joint Stablecoin Project by Three Major Banks

• Yield of the Week: 12.5% APY on Reservoir

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HEADLINE

UK Central Bank Proposes Strict Stablecoin Regime

State of play: The Bank of England has proposed a stringent regulatory framework for systemic, sterling-denominated stablecoins, setting temporary individual and business holding limits and mandating specific asset backing rules.

• The BOE is proposing temporary holding limits of £20,000 for individuals and £10 million for most businesses per coin to mitigate the risk of deposit flight from commercial banks during the transition period.

• Systemic stablecoin issuers must hold a robust mix of backing assets: 40% in unremunerated deposits at the Bank of England and up to 60% in short-term UK government debt.

• The proposals have drawn criticism from crypto groups concerned about making the UK uncompetitive, yet proponents argue the strict rules will establish trust and long-term viability for systemic stablecoins.

What’s Next: The industry will focus on intense lobbying against the holding limits during the consultation (until Feb 2026). The BOE will finalize rules in 2026, leading to the establishment of the highly-regulated, systemic sterling stablecoin market and a simultaneous regulatory separation for non-systemic coins under the FCA.

Why it Matters: This framework is a major global benchmark, prioritizing the protection of traditional banking stability over rapid crypto adoption. The mandatory BOE deposits and limits set a high, potentially restrictive, security standard globally, challenging the UK's competitiveness versus the EU and US.

Our Take: The BOE is trading short-term market adoption (due to holding caps) for long-term institutional trust. The opportunity is in the prestige of a highly-secure, BOE-vetted status. The main challenge is the high operational cost and drag from the 40% unremunerated BOE reserve requirement, favoring only well-capitalized issuers.

QUICK BITES

• Elixir sunsets deUSD synthetic stablecoin.

• Italy's banks support ECB's digital euro plan.

• Synthetic stablecoin USDX depegs below $0.60.

• Tether moves nearly $100M in bitcoin to reserve wallet.

• BNY sees stablecoins, tokenized cash hitting $3.6T by 2030.

• Japan's regulator backs joint stablecoin project by three major banks.

• Exodus acquiring Grateful to expand stablecoin payments in Latin America.

• Rumble and Northern Data sign merger agreement as Tether makes $150M AI commitment.

• Tempo makes first venture bet with $25M investment in open-source dev team Commonware.

• Fed Governor Miran calls stablecoins 'a force to be reckoned with' that could put downward pressure on interest rates.

YIELD OF THE WEEK

Neutrl NUSD and sNUSD

• Neutrl is a market-neutral synthetic dollar designed to capture yield opportunities, specifically through Over-The-Counter (OTC) arbitrage, funding rate capture, and other delta-neutral strategies, without taking directional market risk.

• The native asset, NUSD, is a synthetic dollar (not a fiat-backed stablecoin like USDC or USDT) backed by a diversified portfolio that includes crypto-native yield-bearing assets, liquid synthetic dollars, and corresponding short futures positions. This unique collateral profile introduces different risk factors compared to traditional stablecoins.

• Yield generated by the protocol is exclusively distributed to holders of the staked version, sNUSD. By staking NUSD, users receive sNUSD, a token whose value automatically appreciates as the yield accrues to the vault, allowing for passive earnings without manual compounding.

Reservoir: 12.5% APY

• Reservoir is a permissionless protocol built on Ethereum, featuring native integration with top-tier networks. It provides a suite of stable assets, including the core stablecoin rUSD, a liquid yielding asset srUSD, and a term-based yielding asset trUSD, alongside permissionless lending markets.

• The core liquid yielding asset, srUSD, accrues interest daily and is freely mintable/redeemable by users. However, access to srUSD is currently restricted to non-U.S. users and individuals in non-sanctioned countries.

• The interest rate for srUSD is variable but actively managed. The rate is determined by the protocol's governance based on the performance and overall health of the protocol's balance sheet.

Euler Hyperithm Euler USDC: 30.34% APY

• The offering is a managed vault within the Euler protocol where users can deposit USDC stablecoins. The primary objective of the vault is to generate yield for depositors through strategies managed by Hyperithm, a specialized digital asset manager.

• The vault provides full transparency regarding its operational history. Depositors have visibility into the vault's historical exposure and the details of its asset rebalancing activities.

• The vault operates with a 10% performance fee. This fee is charged against the yield generated by the vault, meaning the principal deposit remains untouched, but the manager's compensation is directly tied to successful performance.

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