Yesterday in a speech at Cambridge University, the UK Financial Conduct Authority (FCA) ‘s Christopher Woolard spoke about Libra and stablecoins. He said that Libra poses questions for the FCA, the Bank of England, and international partners.
“Moreover, its [Libra’s] size and scale will pose questions for society and government more generally about what is acceptable and desirable in this space,” said Woolard who is the FCA Executive Director of Strategy and Competition.
He continued: “Historically, this may have been a sector that has lived by the mantra of ‘move fast and break things’, but the issues raised here require deep thought and detail.”
It was prefaced by “if this comes to fruition, Libra could be very significant indeed.”
He went on to say that there needs to be an understanding of business models and how they will benefit consumers. And consumers need to understand any trade-offs in business models. As a regulator, the FCA wants to consider the broader impact on market integrity and stability.
Libra plans to be a stablecoin, backed by a basket of currencies. Many have a simplistic view of stablecoins based on some of the highest profile examples.
What is a stablecoin?
But Woolard pointed out that not all stablecoins are created equally. Many are simply e-money which requires a license as an e-money issuer.
Others are algorithmically controlled tokens. And there are also stablecoins backed by real-world assets other than money such as securities or other crypto assets.
The FCA director didn’t explicitly mention MakerDAO, but its coin Dai is backed by ether and over-collateralized. Maker is also planning to use alternative collateral, initially other cryptocurrencies. But potentially it could be all sorts of assets.
Woolard’s point is that each stablecoin needs to be evaluated on its characteristics. And some of them could be regulated products.
“Something labelled as a ‘stablecoin’ could sit within or outside of our regulatory perimeter. Depending on its structure, it could be many things – for instance, a derivative, a unit in a collective investment scheme, another kind of security or e-money.”
The FCA Director asked the question about whether algorithmic stablecoins or those backed by crypto assets are necessarily stable.
“Volatility and stability are important concepts, but they are relative in nature.”