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Recently, governments are more willing to consider stablecoins as a form of payment. We can see this in the UK right now as the government just announced that it will introduce a bill to regulate how stablecoins can be used as a formal method of payment. This is also the UK economy recognizing that decentralized finance is a potentially disruptive economic movement for the global economy in the years and decades to come.

Many people outside the crypto space assumed that all stablecoins are risky after the collapse of UST (UST-X). The UK government wanting to regulate stablecoins is a welcome development in contrast to the assumed risk. As an algorithmic stablecoin, UST’s non-reliance on collateralization assets left exposure points which, if not addressed, can create the exact situation that arose. Instead, the Terra protocol would mint and destroy tokens to maintain UST's peg. Most other stablecoins are backed by real assets, making this method much different. 

There are a large number of successful centralized and decentralized stablecoins that have been used for years and are very well tested. Unfortunately with the news of Terra’s (LUNA-X) collapse they have not been acknowledged. For example, MakerDAO's stablecoin DAI (DAI-X) is an overcollateralized stablecoin that uses collateralized debt positions to ensure that there are always enough assets backing DAI. This is performed automatically through smart contracts, liquidations, and its peg-stability module. 

Other stablecoins, such as USDC (USDC-X) and USDT (USDT-X), are centralized and backed by fiat. Both trade with billions in volume every day. Indeed, in June, Tether (the organization behind USDT) announced the launch of a GBP-backed stablecoin, GBPT (GBPT-X), which may or may not have featured in the UK government’s thinking. Stablecoins, it seems, are clearly here to stay.

This bill is more about setting standards for how stablecoins can be used in a global economy and is less about regulation which is important to note. Blockchain technology is more secure and inclusive, as well as borderless so individuals all over the world can participate in a global financial system without facing barriers and fees posed by intermediaries. It is so borderless that someone in a small village in Romania can earn yield by lending crypto to someone in the UK. 

Stablecoins allow anyone and everyone to participate in a global financial ecosystem, and to use currencies like USD and GBP in place of more volatile national currencies. For many, this could shift how we think about, interact with, borrow, and use money.

The majority of decentralized stablecoins are fully backed by crypto assets. Users can lend their blue chip crypto assets to borrow stablecoins, or they can borrow stablecoins against their own deposits by taking a collateralized debt position (CDP). This provides users with a novel way to borrow and allocate their capital without selling their cryptocurrency.

Stablecoins are growing, and major economies don't want to be left behind. As the DeFi ecosystem grows, we're likely to see dozens of different stablecoins pegged to other foreign currencies. Blockchain developers are finding innovative new ways to offer secure, permissionless stablecoins that can connect traditional and decentralized financial markets.

Looking at the big picture, decentralized stablecoins will start to gain a better reputation as safer and more transparent options based on smart contracts, and they can be strengthened with fiat-backed stablecoins like USDC and USDT as tools for maintaining peg stability. Stablecoins are a trusted, convenient, and accessible form of digital payments. For now, the expansion of Tether's offering and the UK government's openness to allowing stablecoins as a payment method are very positive signs for the future of stablecoins.