Paradigm’s Proposals for UK Stablecoin and Crypto Regulation

Summary

This policy submission argues that proposed UK rules for stablecoins and crypto activities should better accommodate cross-border firms, decentralized protocols, and payment use cases. It calls for clearer coordination with other jurisdictions, a technical test for when a DeFi protocol has a responsible controlling entity, and regulatory treatment that recognizes institutional uses such as liquidity provision and collateral management.

For stablecoins, the authors argue that short-term government securities can serve as reserve assets alongside central bank deposits, and recommend more flexible, risk-adjusted reserve requirements. They also oppose fixed holding caps, favoring liquidity and capital supervision, with limits reserved for defined stress conditions. The case draws comparisons with other financial products and cites the authors’ view of issuer reserve practices, but it is an advocacy document rather than an independent evaluation of systemic risks. It recommends regulatory coordination and a transatlantic sandbox as the framework develops.

Key ideas

• The submission argues that UK rules should allow domestic firms to connect to global trading activity and clarify cross-border requirements.
• It recommends objective technical criteria for identifying control and decentralization in DeFi protocols.
• It favors allowing a higher share of stablecoin reserves in short-term government securities, subject to liquidity safeguards.
• It argues that fixed holding caps are less suitable than liquidity and capital supervision, with limits available during defined stress.
• The proposals reflect an industry position and should be read as regulatory advocacy.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.