Strategic stablecoins: GBP stablecoins and the CDOTs
Summary: Britain is falling behind in digital finance. The British record is lamentable. Take stablecoins - there are only a handful of GBP-pegged stablecoins, with very low rates of adoption. In total, there are $250 billion of stablecoins in circulation - but only $621,000 (£461,000) is pegged to the pound. This means we miss growth opportunities. On a wider level, if we fail to develop a market in GBP-backed stablecoins, we lose a crucial way of finding buyers for British debt. British prosperity requires the promotion of GBP stablecoins - and the CDOTs are well-placed to assist as issuance partners and innovation hubs.
Anyone who states that blockchain has yet to find a use case is ignoring stablecoins. Stablecoins are blockchain-based tokens that are pegged to the value of a fiat currency, and their use is exploding. About $250 billion in stablecoin tokens have been issued, and their daily transaction volume is growing rapidly, so much so that McKinsey analysts predict stablecoin transaction volume could outgrow traditional payment volume within a decade.
This growth is unsurprising, because stablecoins have a variety of uses.
Stablecoins: uses and forms
Cheaper, faster cross border transfers: For businesses and people living away from their families, they enable quicker and cheaper cross border transfers. Many millions of people spend the bulk of their working lives labouring in other countries so they can send money home, only for Western Union et al to take 8% in transaction fees. This is a developmental injustice, and one that blockchain helps.
Inflation hedging: In currencies with volatile currencies, stablecoins as used as a hedge against inflation, protecting hard earned wealth.
Financial inclusion: Many countries and regions suffer from underbanking, leaving millions of people outside of the financial system; paired with crypto wallets, the spread of stablecoins means these people have access to financial services and savings.
Programmable lending: Blockchain tokens are programmable, meaning that the lenders of stablecoins can potentially program how they are spent
Asset tokenisation: Stablecoins provide the on-and off ramp between fiat currencies and tokenised assets. They also provide the settlement layer for this space - most tokenised trades are denominated, collateralised, or settled in stablecoins
And many more….
They come in three forms: fiat backed stablecoins, which make up about 87% of total volume; crypto collateralised stablecoins, making up about 13%; and algorithmic stablecoins, accounting for about 0.2% of total volume.
Dollar dominance
Stablecoins are a key part of the future of finance - but despite the historic global role of the British finance industry, it is more or less nowhere in relation to stablecoins.
Stablecoins are overwhelmingly dollar backed. Approximately 99% of stablecoins are dollar-denominated, and the majority of stablecoin transactions are conducted in these USD backed stablecoins. Other currencies do not yet compete. It is estimated for instance that there are approximately $240 billion of stablecoins in circulation, but as of June 2025, EU denominated stablecoin have a market capitalization of less than $350 million. Astonishingly, the combined market capitalization of GBP backed stablecoins was only $621,000 USD (£421,000) in September 2025.
Britain’s failure to produce and promote sterling backed stablecoins inhibits growth, promotes dollarisation at home and abroad, and loses Britain a valuable opportunity to finance its debts.
Lost growth
On the most basic level, every stablecoin issued in the UK is a growth opportunity for the United Kingdom, bringing fees to the professional advisors and infrastructure providers who will service it, as well as taxable fees earned by the stablecoin issuer itself. Similarly, every GBP based stablecoin launched in a UK associated jurisdiction also brings growth to the UK services sector, as it will need to use UK based professionals. More growth = more taxes.
Dollarisation, tokenisation, and national policy freedom
The dominance of the dollar in stablecoins creates a potential problem for the rest of the world - dollarisation. The more individual users and consumers utilize dollar backed stablecoins over their local fiat currencies, or indeed local currency backed stablecoins, then the less control national governments have over their economic policies. Core levers of monetary control include changing interest rates, buying and selling bonds, and altering bank reserve requirements - but if citizens and consumers are no longer using their national currency, central banks will be rendered powerless to influence their economy. US stablecoins may be good for people in Nigeria, Argentina, Turkey etc al, but they may damage the economy in the long term by corroding local monetary sovereignty.
What is true for Nigeria and Argentina is also true for Britain. As stablecoins continue to expand in popularity, UK consumers and businesses will find it both easy and increasingly necessary to hold and use USD backed stablecoins - particularly when it looks like forthcoming stablecoins rules seem to be setting extra provisions on UK issued stablecoins. Consider tokenisation - most tokenised assets are traded for USDC or USDT. If Britain was to dive more deeply into real-world asset tokenisation, and to do this without viable GBP backed stablecoin offering, then another new and growing element of our economy is handed over to the influence of the US federal reserve.
For the USA, the dominance of USD backed stablecoins is, broadly, a good thing. As USD-backed stablecoins grow, they will undergird US financial dominance, and find buyers for US debt. It is no coincidence that the Trump administration pushed through the recent GENIUS Act; encouraging people to issue and promote US-backed stablecoins is another way of maintaining the power of the dollar. With international doubts beginning to develop about the role of the dollar as the primary reserve currency, stablecoins are also a way of shoring up the dollar’s position. This is all very well and good for the USA, but it does not follow that this is necessarily good for Britain.
Stablecoins: a tool to manage the British national debt
A core element in the national strategic value of stablecoins comes from their role in finding buyers for government debt. To be ‘stable’, stablecoins are mainly backed by reliable, fiat denominated assets - and the largest source of reliable, fiat-backed, and liquidity assets is government debt. USDC is about 90% backed by short-term US treasuries or repurchase agreements. With a market capitalisation of $171 billion in September 2025, USDT is also mainly backed by US treasury debt; 65% of its backing is US t-bills. The more buyers for US debt, the lower the interest rates on US government debt - meaning that the US government can more easily finance itself. If people stop buying treasuries, then the opposite is true; interest rates would increase on US debt, and the US would face an economic crisis.
The same is true for the United Kingdom. To finance government spending, we need low interest rates on government debt. To get low interest rates, we need to encourage people to buy that debt. The promotion of GBP backed stablecoins would promote this. Well-regulated, financially responsible stablecoin projects would back themselves by purchasing reliable, liquid GBP denominated assets such as gilts.
As pointed out by Panmure Liberum, the OBR predicts that total demand for UK government debt - Gilts - amongst UK pension schemes is set to fall from 30% of GDP (approximately £1 trillion) to just 11% of GDP by 2050. If there are fewer buyers for this debt, prices become depressed and interest rates increase. This means that more UK tax revenue is needed to fund interest payments on British debts.
To fight this trend, what we need are more GBP-pegged stablecoins, backed by British debt. To build these, we should look offshore
CDOT token issuance
The CDOT stablecoin solution
The UK is currently preparing to pass new stablecoin legalisation. Mood music suggests this legislation will be highly cautious and non-growth-oriented. This is where the CDOTs can step in.
The CDOTs can help as well regulated, tax neutral bases for the issuance of GBP backed stablecoins. Being common-law based, they work well with the English legal system. Being tax neutral, they will be attractive to international projects who want to issue GBP backed tokens. Because these tokens will still be GBP backed, this will create more demand for UK debt. It will also create more demand for other UK offerings, like legal and custodial services.
There is a direct historical analogy between stablecoins and the historic role of the CDOTs in funnel liquidity into the British banking sector. As the offshore finance industry developed, deposits made in the offshore bank branches of British banks were ‘upstreamed’ into the UK, and used to provide liquidity to the UK banking sector. Here, GBP stablecoins issued in Guernsey, the Isle of Man et al can be used to find buyers for British debt.
This would have the additional benefit of facilitating the rise of tokenisation in the UK. The UK has been falling behind in real world asset tokenisation, another way in which it is failing to grasp the financial trends of tomorrow.
UK/ CDOT stablecoin opportunity areas
We identify these four areas as offering the greatest opportunity for UK / CDOT stablecoin collaboration.
Direct issuance: CDOT stablecoin issuers could directly issue GBP backed stablecoins fully supported by GBP-denominated reserves. The reserves could be held in UK banks and custodial institutions.
Tokenisation clustering: Individuals CDOTs could experiment with allowing different types of reserve asset, such as tokenised real wolrd assets. This could be used to promote the UK RWA tokenisation industry, and provide the UK with insights on the performance and risk of such stablecoin rules.
Sandboxing: Individuals CDOTs could set up bespoke regulatory sandboxes for stablecoin projects that meet core prudential and AML standards. This means that stablecoin projects could test out their business model before moving to getting full UK licencing. The UK, in turn, could learn more about what does and does not work.
Passporting & fast track licensing: CDOT governments and the UK could collaborate to allow CDOT - UK regulatory passporting, similarly to the current situation between the UK and Gibraltar. This would help startup stablecoins to enter and test the market.
Working together, the UK and CDOTs can create a flourishing new era of digital finance.