Huge opportunity for UK stablecoin firms – in capturing market share and helping define the Govt’s regulatory framework

The UK has spent 2025 meticulously crafting a regulatory framework for stablecoins, signaling a clear ambition to become a global hub for the future of digital payments.

And as of December 2025, the UK stands at a pivotal moment in the evolution of digital currency, building a comprehensive and robust framework for stablecoins, establishing a clear path to legitimacy and integration within the nation’s financial system.

This forward-looking vision, however, stands in stark contrast to the current reality of the British Sterling Pound (GBP) stablecoin market, according to research by Dune UK, the crypto data analytics firm. 

What is a stablecoin?

Before we go any further, for those not yet in the know, a stablecoin is a cryptocurrency designed to maintain a stable value, typically pegged 1:1 to a fiat currency like the US dollar, through reserves or algorithms. 

UK’s regulatory superhighway has only a few vehicles in the slow lane

While regulators are building a superhighway for digital currency, the vehicles, the GBP stablecoins themselves, remain scarce and are confined mainly to the slow lane of niche trading activities, with poor adoption and usage.

This is a critical disconnect. Despite a circulating supply of approximately £40 million and utility that is currently concentrated in trading activities on decentralised exchanges (DEXs), GBP stablecoins have not yet been integrated into the core applications of decentralised finance (DeFi), such as lending and borrowing.

The future success of GBP stablecoins hinges on their ability to bridge this gap.

The UK’s emerging regulatory framework

This year, rather than a single decree, the government has pursued a methodical, consultative approach, laying the foundational pillars for a future-proofed financial architecture. The UK is currently establishing a tiered regulatory model that distinguishes stablecoins by their potential risk and impact, in two main categories:

• Systemic stablecoins: Those with the potential for wide-scale use in payments will be subject to stringent joint oversight by the Bank of England and the Financial Conduct Authority (FCA).

• Non-systemic stablecoins: All other regulated stablecoins will fall under the sole purview of the FCA, ensuring a baseline of consumer protection and market integrity.

Bank of England and FCA consultation 

The most significant development is the Bank of England’s consultation paper on a future regime for systemic stablecoins, published on November 10, 2025. It is important to note that this is a consultation, with final rules expected to take shape in 2026. It signals the direction of travel, but is not yet law. Its proposals are central to the conversation:

The aim is to support innovation as part of a ‘multi-money’ system, where regulated stablecoins can coexist with commercial bank money and central bank money.

While the systemic regime is being finalised, the FCA has taken concrete steps to engage the market. Following its own consultation on stablecoin issuance (CP25/14) earlier in the year, the FCA has now launched a “regulatory sandbox” for stablecoins.

A test track for crypto assets

Applications for this sandbox are currently open until January 18, 2026. This is a crucial, practical initiative that provides a supervised environment for firms to test their innovations today, helping to bridge the gap between theory and practice and allowing the market to prepare for the forthcoming rules.

While this is where the UK currently is, there’s no doubt that all of these will prove impactful to the current market outlook of GBP-backed Stablecoins.

The on-chain reality of British-backed stablecoins

While the regulatory vision is progressive, a data-driven analysis of the current on-chain GBP stablecoin market, dating from January to December 16, 2025, highlights that the on-chain footprint of GBP stablecoins is actually small, especially when compared to their USD- and EURO-pegged counterparts.

Limited supply

The total circulating supply of GBP stablecoins (GBPT, VGBP, CCBP) is approximately £40 million. While this represents growth, it is a fraction of the hundreds of billions of dollar worth in circulation of USD stablecoins.

Small daily trading volumes

The daily trading volume ok UK stablecoins on DEXs peaks at around £4.5 million. This activity is concentrated on a few platforms, primarily Mento and Uniswap, suggesting that the main utility is for niche FX trading and settlement rather than broad-based payments and actual DeFi use.

Minimal user adoption

The number of daily active addresses for all tracked GBP stablecoins combined is about one million users, which is negligible compared to the over one million active weekly users of USDT and USDC each. This indicates a very small UK user base and limited network effects.

Absence from DeFi

The most telling metric of the market’s immaturity is its complete absence from one of the core engines of DeFi: lending and borrowing. Dune dashboard data, in the accompanying charts, shows zero GBP stablecoin activity on major money markets like Aave, Morpho, Spark or Euler, which is a British-based lending and borrowing protocol.

This absence is critical. The ability to be used as collateral or to be lent out to earn yield is what gives stablecoins their “money-lego” quality within DeFi and drives much of their utility and demand. Without this, GBP stablecoins are really not integrated into the broader digital asset economy.

The current GBP stablecoin market is not a payments ecosystem; it is a small, niche trading market. It lacks the scale, user base and, most importantly, the DeFi integration necessary to fulfill the role envisioned by UK regulators. 

There is a significant gap between the superhighway being built and the vehicles available to drive on it. That said, there are hopes the sandbox can help fill this gap.

The integration challenge

The central challenge for the UK stablecoin market is one of integration. How can the nascent GBP stablecoin market evolve from its current state to meet the high standards and ambitious goals set by its own regulators? Bridging this gap will require overcoming several key hurdles, including:

• The network effect of the dollar: The digital asset economy is heavily dollarised. Liquidity, trading pairs, and DeFi protocols are all built around a USD standard, creating an immense barrier to entry for any other currency.

• Lack of a compelling business case (so far): For DeFi protocols to integrate a new asset, there must be clear demand for borrowing it or a large supply available to be lent. The current small scale of GBP stablecoins does not yet present a compelling business case for this integration.

• The trust deficit: Before the new regulations are fully implemented, there is a lingering trust deficit. Protocols hesitate to incorporate assets without a proven track record of stability and a clear, legally enforceable claim on their reserves.

For a GBP stablecoin to successfully bridge this gap and become “systemic,” its issuers would need to pursue a multi-pronged strategy that moves beyond simply launching a token, incorporating key tenets such as:

• Embrace regulation as a competitive advantage: The first and most crucial step is to lean into the UK’s regulatory framework. By being among the first to achieve full compliance with the Bank of England and FCA regime, an issuer can differentiate itself based on trust and safety. This is the most powerful marketing tool available to any GBP stablecoin coming out of the sandbox plans.

• Build institutional-grade liquidity: The next step is to move beyond niche DEX trading. This requires building deep, resilient liquidity pools on major, trusted venues.

• Forge a path into DeFi: The ultimate goal must be integration into DeFi money markets. An issuer needs a deliberate strategy to achieve this, which could include.

• Incentive programmes: Launching liquidity mining or yield farming programs to bootstrap supply on platforms like Aave or Curve.

• Strategic partnerships: Working directly with the governance bodies of major DeFi protocols to make the case for listing their asset, using their regulated status as a key selling point.

• Demonstrating demand: Building a strong use case outside of DeFi – eg, in real-world payments or remittances to demonstrate organic demand for borrowing the asset.

Data shows the UK is lagging behind – but it can catch up

The UK has articulated a bold and credible vision for a future in which digital currencies are a safe and integral part of its financial landscape. 

However, the on-chain data shows that the private sector has not yet delivered a product that can fulfill this vision. 

Huge opportunity

The integration challenge is key to the future of stablecoins in the UK. The opportunity is immense. 

The first GBP stablecoin issuer to successfully navigate this challenge – by embracing regulation, building deep liquidity and breaking into the core of the DeFi ecosystem – will not only capture a significant market but will validate the UK’s entire regulatory approach.