Over the past year, stablecoins have gone from crypto curiosity to serious policy discussion. The Bank of England has described them as a “new form of money”. Banks, payments firms and policymakers are increasingly talking about a GBP stablecoin for the growth and competitiveness of the UK, to ward off the unintended dollarisation of the economy and to retain UK monetary sovereignty. 

Yet much of today’s debate around stablecoins assumes that regulation alone will determine whether they succeed. It will not. As Polly Tsang, Senior Financial Services Regulatory Manager at ICAEW, highlighted earlier this year when giving evidence to the All-Party Parliamentary Group on Digital Markets and Digital Money, even perfectly regulated stablecoins will struggle to achieve mainstream adoption unless governments, banks and companies can answer three deceptively mundane questions: how do we account for them, how do we tax them and how do we assure them?

The accounting treatment

Most people instinctively assume a stablecoin is cash. If a digital token is backed one-for-one by fiat and redeemable on demand, what else could it be? Under current accounting rules, however, the answer is often: it depends. A stablecoin might be treated as cash, an intangible asset or even inventory depending on who holds it and why. That distinction matters enormously.

Consider a bank holding large amounts of stablecoins. Banks want these assets treated as cash equivalents because accounting classifications flow directly into prudential regulation. If regulators deem the holding an ‘intangible asset’, it can effectively become toxic from a capital perspective: unusable for liquidity purposes and deducted from regulatory capital.

Economically, the bank will argue, the stablecoin behaves exactly like cash. But legally, there is a complication hidden beneath the technology. In many stablecoin structures, holders do not actually own the underlying reserves. They own a contractual promise from the issuer. In some cases, only certain customers have direct redemption rights at all.

That subtle legal distinction may sound like the sort of thing only lawyers and auditors care about. Yet it could determine whether stablecoins become integrated into mainstream banking or remain in the fringes. 

Stablecoins and tax

Tax poses another problem policymakers are only beginning to grasp. Imagine a world where stablecoins are widely used for everyday retail payments, such as buying coffee, train tickets and online shopping. Now imagine that every transaction potentially triggers a taxable event.

For ordinary consumers, that quickly becomes absurd. No one wants to calculate gains and losses on a store-bought sandwich. This is the current reality, but HMRC has confirmed it will look to change this following Mansion House announcements in July. 

Ultimately, the market will decide whether stablecoins succeed. Governments should not force adoption. But policymakers should at least ensure the tax system is not accidentally creating barriers to otherwise viable use cases.

Assuring stablecoins

Then there is assurance, perhaps the most important issue of all. The collapse of the crypto lender Celsius in 2022 revealed what happens when financial innovation races ahead of basic protections. Strip away the crypto jargon and Celsius resembled a bank without capital requirements, deposit insurance or meaningful safeguards around client assets. Customers believed they owned something safer than a traditional bank deposit. Many discovered too late that they were effectively unsecured creditors in a highly leveraged lending structure.

The lesson extended far beyond one failed crypto company. In digital assets, what customers think they own, what they legally own and what they can recover in insolvency can be three entirely different things.

Traditional finance learned these lessons painfully over decades of crises and bank runs. That is why financial reporting, audits and client asset protections exist. Stablecoins and tokenised finance will need equivalent safeguards if they are to earn public trust.

The future of digital assets and tokenisation will depend not only on technology breakthroughs, but on whether they can integrate into the foundations of trust that make mainstream finance credible. Stablecoins may be new, but its future may depend on one of finance’s oldest inventions: debits and credits.