Don’t Let Stablecoin Limits Close the Door on the UK’s $18 trillion Tokenisation Opportunity
The UK stands at a pivotal moment in shaping the future of digital finance. Just this week, the Financial Conduct Authority (FCA) launched a new consultation aimed at supporting the tokenisation of investment funds — a clear signal of the UK’s ambition to become a global leader in financial innovation. Yet at the same time, the Bank of England is considering imposing limits on how much stablecoin individuals and businesses can hold, with Deputy Governor Sarah Breeden warning that widespread adoption could trigger “significant” outflows of bank deposits and pose risks to financial stability.
The tension between these two developments captures the challenge — and opportunity — facing policymakers today. While prudence is understandable, blunt restrictions on stablecoin usage risk stifling one of the most transformative shifts in modern finance before it has even begun.
Stablecoins: The Essential Bridge to Tokenised Markets
Stablecoins are far more than a new form of payment. In the emerging digital economy, they are the essential bridge between traditional money and tokenised assets — from real estate and bonds to equities and commodities. They provide the liquidity and settlement layer that enables people and institutions to participate in this new, more efficient financial infrastructure.
If limits are placed on how much of a stablecoin someone can hold, they are not just being prevented from transacting freely — they are being limited in their ability to invest in, access, and benefit from the tokenised economy.
This has practical consequences. A retail investor wanting to diversify their savings into tokenised property, renewable energy projects or fractionalised art could find themselves unable to do so easily, or at all. A small business seeking to issue tokenised debt to raise capital might struggle to attract investors if liquidity is capped. And at a macro level, the UK could lose out on the trillions in investment, innovation and jobs expected to flow into jurisdictions that offer a clearer, more enabling environment.
Understanding the Bank of England’s Concerns — And What They Mean for You
It’s easy, particularly from a Web3 perspective, to interpret talk of stablecoin limits as a reflexive attempt by central banks to “control the money.” But the reality is more nuanced — and understanding it is crucial if the industry wants to engage constructively with policymakers.
At the heart of the Bank of England’s caution are three key risks. And while they might sound abstract, each has very tangible implications for people’s everyday lives — and they’re not just theoretical. History shows us how these risks have played out before:
Risk #1: Bank funding and credit creation
Banks rely on customer deposits to fund lending — from mortgages and car loans to small business finance. If large amounts of money moved into stablecoins held outside the banking system, that pool of funding would shrink.
What that means in practice: mortgage approvals could become harder to get, interest rates on personal loans might rise, and small businesses could find it more difficult or expensive to borrow for growth.
We’ve seen the consequences of credit drying up before. During the 2008 financial crisis, sudden funding pressures on banks caused lending to contract, triggering a deep recession and widespread job losses. More recently, in the 2022 UK gilt market shock, rapid shifts in liquidity caused by pension funds’ liability-driven investment strategies exposed just how quickly a withdrawal of funds can ripple through the real economy.
Risk #2: Systemic concentration
If one or two stablecoins become deeply embedded in the financial system, they could become “too big to fail.” Any operational failure, cyberattack or loss of confidence could cascade through markets almost instantly.
What that means in practice: people could temporarily lose access to their money, businesses might struggle to pay suppliers or staff, and markets could freeze — disrupting everyday life in ways that feel a lot like a traditional banking crisis.
The collapse of TerraUSD (UST) in 2022 is a stark example. Once one of the world’s largest stablecoins, it lost its peg to the dollar virtually overnight, wiping out more than $40 billion in value and triggering contagion across the broader crypto ecosystem. If a similar event were to happen with a widely used, systemically important stablecoin, the knock-on effects could extend far beyond the digital asset space.
Risk #3: Monetary policy transmission
Central banks use tools like interest rates to control inflation and steer the economy. Those tools rely on influencing how money flows through the system. If too much value sits in stablecoins beyond their reach, that influence weakens.
What that means in practice: if inflation spikes, central banks might struggle to bring it under control, leading to rising prices for everyday essentials. In a downturn, their efforts to stimulate growth could be less effective — prolonging recessions and putting jobs at risk.
This risk isn’t theoretical either. Countries like Ecuador and El Salvador, which have adopted the US dollar as legal tender, have far less control over their domestic economic conditions. Similarly, China’s struggles to regulate credit cycles driven by its vast shadow banking sector show how activity that occurs outside the traditional financial system can blunt central bank policy.
These examples illustrate why policymakers are cautious. They’re not simply worried about losing control — they’re concerned about scenarios that could impact mortgages, savings, jobs, and prices. Understanding that context is essential if the Web3 community wants to build credibility and influence in the debate. It also shows why dialogue between regulators and industry is so important: without it, regulation risks being shaped by fear rather than by a clear-eyed understanding of both the risks and the opportunities.
But caution, if overdone, can itself become a barrier. The key question now is how to safeguard financial stability without limiting access to the enormous benefits tokenisation can deliver. And for households, businesses and investors, the difference between the current system and what a tokenised future offers could not be more profound.
The Limits of the Current System — and the Potential of Tokenisation
For most people, investing in real estate beyond their own home is out of reach. Access to early-stage private companies, infrastructure projects or art markets is restricted to institutions and the ultra-wealthy. Even routine transactions — such as buying international assets or moving money across borders — are often slow, costly and opaque.
Tokenisation isn’t just a technological shift — it’s an economic one. By breaking assets into fractional, tradeable units, it allows people to invest directly in markets that were once closed off. That could mean buying a small share of a commercial property, supporting a renewable infrastructure project with a modest contribution, or trading tokenised government bonds with the speed and efficiency of digital finance. The result is a more inclusive financial system — one that lowers barriers, increases participation, and channels capital into a wider range of opportunities.
The political debate is already shifting in this direction. Recent comments from Chancellor Rachel Reeves, reported by Martin Lewis, show that the government is actively exploring ways to encourage Britons to invest rather than simply save, including potential changes to ISA allowances to push more money into productive assets. Tokenisation could make that ambition a reality — by expanding the range of investment opportunities available to ordinary citizens and lowering the barriers to participation, it could help redirect capital into growth sectors of the economy while also delivering better outcomes for savers.
This isn’t a distant future — it’s already underway. A recent report by Boston Consulting Group and Ripple estimate that more than $18 trillion in financial and real-world assets could be tokenised by 2030. How the UK responds now will determine whether it leads in capturing that value — or watches it migrate elsewhere.
A Strategic Opportunity for the UK
The FCA’s new consultation is a welcome step in building the regulatory infrastructure needed to support this evolution. But it must be matched by a central bank approach that recognises stablecoins as a foundational component of the tokenised economy, not a peripheral risk to be contained.
If the UK gets this right, the prize is enormous: deeper and more inclusive capital markets, increased access to investment opportunities for ordinary citizens, and a new wave of innovation and economic growth. If it gets it wrong, the risk is equally significant — a fragmented system where innovation flourishes elsewhere, and UK households and businesses are left behind.
At CryptoUK, we believe that the best outcomes will come from open dialogue between regulators and industry. Our members include some of the world’s leading authorities on stablecoins and tokenisation — expertise that can help policymakers understand the real-world dynamics of these technologies and their potential to deliver economic benefit.
This is not just about the future of crypto — it’s about the future of how money, markets and investment work in the UK. The decisions taken today will shape that future for decades to come.
