At a glance
- Stablecoins are digital currencies pegged to traditional money like the pound or dollar.
- They enable fast, cheap international payments and can be programmed for automated transactions.
- Global regulation is a patchwork, and their tax treatment remains uncertain for accountants.
- Accountants must advise clients on recording, reporting, and navigating complex stablecoin tax rules.
A digital coin that mimics the pound or the dollar might not sound revolutionary. But think about the last time a client sent funds overseas. The bank fees. The days of waiting. The absurdity of a global financial system that still observes weekends and public holidays. Suddenly, we have a clearer case for the digital cryptocurrency variant known as stablecoins. They are much more than a crypto novelty.
They are also gaining serious scale. A July 2025 McKinsey report notes that around US$250 billion in stablecoins have been issued, facilitating US$20 to $30 billion in daily payment transactions. To be fair, this is still a fraction of the trillions processed daily by traditional systems like SWIFT. Yet it represents a fast-growing slice of the financial pie – a slice that tastes of speed and efficiency.
In fact, a late-2024 report from Standard Chartered Bank and digital asset brokers Zodia Markets calls stablecoins “the first killer app” of blockchain technology.
So what exactly are stablecoins? They are a variety of cryptocurrency that behaves in many ways like traditional money. Rather than oscillating wildly, bitcoin-style, their value is intended to stay pegged to an underlying currency, such as the pound.
This structure enables users to send funds internationally, directly and instantly, without the usual chain of correspondent banks, each taking a fee and potentially adding days to the process. A stablecoin transaction can take just a few seconds. For SMEs, this is a powerful proposition.
A UK senior associate at law firm Bird & Bird, Christina Fleming, says stablecoins can be seen as a bridge between cryptocurrencies and traditional finance.
“The technology offers the scope for faster settlement times and lower transaction costs to traditional payments rails,” she says.
Beyond payments, stablecoins serve other functions. They can be used to park cash before investing elsewhere in the crypto space, or as a relatively safe port during a market storm.
Hence the growth projections now coming from financial markets. The Standard Chartered report authors estimate global stablecoin supply at about 1% of the US M2 money supply and of foreign exchange transactions. “As the sector becomes legitimised,” they write, “a move to 10% on each measure is feasible. “
An analysis released last month by Panmure Liberum argues that a well-regulated stablecoin market could help address major challenges in UK public finances by catalysing demand for safe UK assets, like gilts, to be held in reserve. The same report stresses how stablecoins may support greater financial inclusion, providing SMEs and unbanked individuals with modern digital tools for transacting and managing their finances – a crucial issue amid falling access to traditional banking and cash.
Programmable money, real-world problems
The “programmable” part is where things get interesting for business. Stablecoins can contain smart contracts, which means you can use them with an ‘if/then’ statement.
“Bank and Institution issued stablecoins are going to be the biggest transformation of the financial industry since its inception.”
Antony Welfare
This opens up new commercial possibilities, such as using the coins for digital escrow. A contract could be written to say, ‘If you send me a digital proof of delivery, you get the money’. This automates payment on delivery, removing trust barriers in transactions.
This functionality moves stablecoins beyond being a simple payment rail and turns them into a tool for automating commercial and financial agreements, potentially reducing administrative overheads and counterparty risk for businesses.
Of course, the name itself contains a promise. Stablecoins typically remain stable only when they are backed by audited reserves. If some other form of backing is applied, they can become highly unstable. The classic case is the “algorithmic stablecoin” method used before the Terra Luna crash in 2022, which sent that token from $US118 to $US0.09, vaporising billions in assets. Similarly, if there are factors that call into question the issuer’s ability to meet customer redemptions for the underlying currency, instability can result.
Even when fully backed, their suitability as a cash replacement remains in question. In its 2025 annual report, the Bank of International Settlements warned that stablecoins “perform badly” on key requirements for being treated as money, suggesting “they may at best serve a subsidiary role”.
When fully backed, stablecoins can be similar to cash, with some extra benefits. Nevertheless, their suitability as a stable cash replacement remains in question. In its 2025 annual report, the Bank of International Settlements warns that stablecoins “perform badly” on key requirements for being treated as money. The global monetary authority suggests that “they may at best serve a subsidiary role”.
Compliance and traceability on the blockchain
Like their stability, stablecoins’ usefulness to criminals is often discussed. But the facts often diverge from the headlines. Cash remains the most commonly used medium for illegal transactions. Stablecoins, by contrast, operate on transparent, immutable ledgers where every transaction is traceable.
This public ledger – the blockchain – appears to be a powerful deterrent. Responsible issuers are also embedding compliance into the technology itself, building in features like transaction monitoring and spending caps to meet anti-money laundering and counter-terrorism financing (AML/CTF) laws.
Some proponents argue that the future of digital assets is not unregulated chaos; it is high-tech compliance.
Regulation: A global patchwork
Around the world, regulators are moving at different speeds. Europe, Japan, Singapore, and Hong Kong are leading the pack. The United States is catching up fast, spurred by US President Donald Trump’s enthusiasm for cryptocurrency. The US’s proposed GENIUS Act, for example, would mandate 100% backing with liquid assets and monthly public disclosure of reserves.
The UK, however, is lagging.
In the UK, HM Treasury has published draft legislation around a financial services regulatory regime for cryptocurrencies and other crypto assets. And the UK Financial Conduct Authority has published its own consultation paper around proposed rules for issuing stablecoins and safeguarding crypto assets. The FCA has confirmed it wants to treat stablecoins as money-like rather than as investment assets.
The FCA’s stated goal is to create a system where stablecoins can be used safely and reliably for payments, ensuring value stability and clear consumer protections. The regulator is actively seeking input from the industry, including SMEs, to ensure the final rules “promote safe innovation and robust market practices”.
But final rules are not expected until 2026, and critics warn UK legislative change is coming too slowly.
Last month, Antony Welfare of the Commercializing Blockchain Research Centre consultancy, said the UK was at risk of becoming “financially irrelevant” if it did not move faster on stablecoin regulations.
“Bank and Institution issued stablecoins are going to be the biggest transformation of the financial industry since its inception,” he said. “If the UK continues to linger, the other countries and currencies will simply take the market. Why wait for a GBP settlement stablecoin when you can settle in US dollars or euros today?”
This would not only export financial activity but also introduce unnecessary foreign exchange risk and complexity for SMEs. A spring 2025 briefing from the law firm Travers Smith puts it starkly, referring to the “urgent issues facing the UK’s stablecoin sector” that require immediate attention.
The accountant’s conundrum: asset or cash?
For accountants in the UK, the most immediate challenge is a fundamental one of classification. On the balance sheet, stablecoins are currently treated as digital assets, not cash.
The most significant consequence is in taxation. Because stablecoins are currently treated as property, not currency, under UK tax law, their disposal is a taxable event. A ‘disposal’ is a broad term that includes not just selling the stablecoin for pounds but also exchanging it for another crypto asset or using it to pay for goods or services. Each of these events can trigger a CGT liability, says Knightbridge Tax director Laura Knight.
“The biggest issue is that once you are subject to CGT, you are subject to complex cost basis pooling (known as s104 pooling under the Taxation of Chargeable Gains Act 1992) and matching where you must track all acquisitions and disposals of the same asset in one pool, irrespective of holding across different wallets, accounts and exchanges that may have been used,” she says.
“Frequent transactions involving stablecoins can therefore lead to numerous taxable events, complicating record-keeping and tax reporting. Each transaction requires detailed supporting evidence, including the date, value in GBP at the time of both the acquisition and disposal transactions, and the nature of the transaction, to accurately calculate gains or losses and will involve needing to use appropriate tax software to track.”
Knight says the compliance challenge is currently similar to what used to be required when tracking movements between foreign currency bank accounts prior to tax code changes in 2012. However, she points out, a pound-backed stablecoin would help minimise the tax consequences.
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