Why Fungible Crypto Assets Are NOT Securities

In August we compared the upcoming stablecoin regimes in the US and UK. Since that post, the UK has moved forward in shaping how these digital assets should be regulated as part of the financial system, especially if they become widely used for everyday payments. This post provides an update to describe the significant changes in direction in the latest UK proposals from the Bank of England and HM Treasury. The Bank of England has the mandate to create rules for ‘systemic’ stablecoins given their potential impact on financial stability, while HM Treasury (part of the UK government) is creating the detailed law that will give UK regulators the powers they need (and set the overall guidelines) to develop regulation. The big change in the UK is the focus on “systemic” stablecoins, and how they and their issuers are to be regulated.  The concept of systemic stablecoin regulation does not appear directly in US law under the GENIUS Act, although provisions of GENIUS require regulators to evaluate stablecoins and their issuers for potential threats to financial system stability. Below, we focus on the UK proposal. Why the UK is Focusing on Stablecoins Now Stablecoins (digital tokens designed to maintain a stable value against a fiat currency) remain the fastest-growing form of money in the digital economy. They are a key pillar of our token classification system, which you can read more about here. The UK government and regulators have been clear: if stablecoins are going to function like money in daily life and not just in crypto trading, then they must be subject to a regulatory framework that protects consumers and safeguards financial stability. The goal is to integrate stablecoins responsibly into the UK’s financial architecture, while also supporting the innovation they represent. This will go hand-in-hand with proposals for comprehensive crypto regulation that were originally introduced in 2023 through proposed changes to the Financial Services and Markets Act. The UK government (HM Treasury) ‘laid’ secondary legislation in December 2025 that would put much of the 2023 updates into effect, including defining stablecoins as regulated financial instruments and regulating their issuance.   The Core Focus: “Systemic” Stablecoins In coordination with HM Treasury and the FCA, the latest Bank of England consultation paper was published in November 2025. Its focus is on pound sterling-denominated “systemic” stablecoins. These are stablecoins that become so widely used in everyday retail payments that, if something went wrong, they might affect not only consumers and businesses at scale, but the wider financial system as well. What makes a stablecoin systemic? While the full details will be clarified in the final regulation, it’s essentially based on how many people and businesses use it (and for what kinds of payments) and the extent of its interconnections with the financial system. HM Treasury has the power to designate stablecoins as systemic and once it has done so, the stablecoin would fall under a joint regulatory regime, with the Bank of England looking after financial stability and prudential requirements, and the Financial Conduct Authority (FCA) overseeing consumer protection and conduct under its own upcoming stablecoin regime.  Non-systemic stablecoins will be regulated solely by the FCA under existing and upcoming cryptoasset rules. A non-systemic stablecoin, for example, is one used for a day-to-day payment or as an on-/off-ramp to the crypto ecosystem that does not have a critical mass of users in the UK.  Note that even with this consultation paper, much of the regulation of stablecoins, their issuers and their usage remains subject to additional rulemaking.  Those looking for certainty need to remain patient, notwithstanding that the government has been considering these issues since at least 2023. New Backing Asset Rules: A Balancing Act One of the biggest changes in the new proposals is how issuers of stablecoins designated systemic would be required to back the coins they issue; that is, what assets they must hold to ensure that coins remain redeemable at a fixed value in pounds sterling. Under the draft proposals: At least 40% of backing assets must be held as unremunerated (non-interest-bearing) deposits at the Bank of England - effectively very liquid central bank money. Up to 60% can be held in short-term UK government debt (gilts), which can earn a return and help make issuer business models viable. This is a shift from earlier proposals that would have required almost all backing assets to be held at the central bank with no interest.  The Bank of England is also considering offering liquidity lines to issuers, and proposes allowing them to repo out backing assets as a means of accessing additional liquidity. The idea is to strike the right balance: making sure issuers can always meet redemption requests even in a crisis, while also not squeezing them out of business by forcing ultra-conservative backing rules.These requirements will make systemic stablecoin issuers look a lot like so-called narrow banks and the stablecoin itself a lot like a central bank digital currency. “Step-Up” and Transitional Rules There are also transitional measures to support issuers that are systemic from the start. Such firms could temporarily hold up to 95% of their backing assets in short-term government debt during their early growth phase, before scaling into the full 60/40 structure. This “step-up” regime is designed to give new market entrants space to grow while still ensuring they eventually meet stringent safeguards. It is designed to limit worries of a ‘cliff-edge’ from transitioning from the FCA to the BoE’s systemic regime. Consumer Safeguards and Limits Controversially, to reduce the risk that stablecoins could pull deposits out of the banking system too quickly (which could affect credit and financial stability) the proposals include temporary holding limits per systemic stablecoin: £20,000 per individual £10 million per business (with exemptions possible for some business uses) These limits are framed as transitional, with regulators monitoring whether they can be adjusted as the market matures. It is not clear how these limits would be enforced from a practical perspective. Other Noteworthy Requirements in the Consultation A few other important parts of the consultation include: Direct payment system access: Systemic stablecoins should be able to settle with traditional money systems, making redemptions and transfers smoother. Safeguarding backing assets: Reserves must be ring-fenced and held in the UK, with clear legal claims for coin-holders. Subsidiary requirements: Foreign stablecoin issuers targeting the UK market would need UK-based and regulated subsidiaries. Birdseye View  While the UK continues to develop and adapt its framework for stablecoins, it seems to be still mired in basics and with overlap between the FCA and BoE’s roles. The BoE’s updated stablecoin policy proposals reflect a pragmatic approach: significant safeguards to protect users and financial stability, flexibility to support issuer viability, and a clear path toward integrating stablecoins into the payments system, which will allow them to be part of commerce in the UK. But some basic concepts still need to be clarified. And the UK is running out of time. Whether this proposed framework will help the UK compete with the US’s crypto-friendly stance and the EU’s MiCA regime remains a live debate.  It’s important to note that these are draft proposals open for comment, and we expect there will be robust discussion between the Bank of England and industry on the details. They are not set in stone and may be subject to change. We will continue to watch with interest for new developments and await the final rules.

We are pleased to announce the initial members of our newly-formed Advisory Council. We warmly welcome Bart Smith and Laine Litman, CEO and COO, respectively, of Avalanche Treasury Co., Jolie Kahn, CEO of Avax One Technology, and Lord Chris Holmes, a director for the Avalanche Foundation and member of the UK House of Lords.  Each brings rich and diverse experience together with a commitment to the Avalanche ecosystem that makes them uniquely qualified for the role.  Lee Schneider, the Ava Labs General Counsel, will chair the Advisory Council.  APC will serve as the policy hub for the Avalanche community, with the Advisory Council charting the course on the themes and priorities for our educational and advocacy efforts.  2026 promises to be a busy year on the policy front with the US and major other jurisdictions (including Australia, Korea, and the UK) moving ahead with comprehensive crypto asset regulation or making significant adjustments to existing regulation.  APC seeks to be the premier resource on foundational blockchain policy and regulatory issues.  Our guiding principles for policymakers and regulators on how to approach blockchain and crypto set the stage for thoughtful, targeted laws and rules that are easy to understand and apply.  The Advisory Council’s goals include providing expertise and insight on key issues and helping to expand our reach to a broader audience. The Advisory Council has set three policy priorities for 2026.  These are the key themes that will guide our advocacy, thought leadership, and other activities during the year.  They are designed to cover matters that impact the Avalanche community directly, and blockchain/crypto policy and regulation in general.  They are also geared towards what we believe are foundational points to undergird all thinking on these topics. First, APC will focus on token classification, refining it for an era of tokenized real world assets (RWA).  The nature of the asset matters for utilization, valuation and legal/regulatory classification, among other things.  If policy makers and regulators get token classification right, it will result in rules that are easy to understand, apply and follow.  Get it wrong, and it will sow confusion, over-regulation, and inhibit growth.  We have seen token classification in action as countries have adopted rules for stablecoins as distinct from other tokens.  Similarly, tokenized stocks and bonds are different from tokenized concert tickets and should not be regulated the same, nor should protocol (network) tokens.   Second, we will focus on the difference between infrastructure and intermediary functions to buttress the dividing line between which activities should be regulated and which should not.  The nature of the activity matters for allocating responsibility and liability from a commercial, financial, legal and regulatory standpoint.  There are efforts in many jurisdictions to push regulatory requirements to the infrastructure layer like never before.  We will keep fighting against these proposals, because it is the specific businesses that should be regulated, not the infrastructure layer providing common rails for all.  Validator nodes, software developers, and hardware providers are prime examples of infrastructure.  On the other hand, banks, brokerages and exchanges are properly regulated as intermediaries. Finally, we will advocate for an open, uncensored internet to keep blockchains functioning.  Access to infrastructure matters as we navigate an increasingly online world for commerce, finance, communications, education and recreation.  We should not tolerate direct or indirect government restrictions on the internet, such as those imposed by the regime in Iran during this turbulent time.  At best it results in censorship of core freedoms; at worst it results in the death of innocents.  Because blockchains depend on the internet, everyone in the community should demand open, uncensored internet access. Here at APC, we have a number of exciting initiatives in the works.  Follow us on X, LinkedIn and Instagram, subscribe for our biweekly update, listen to our podcast, and find us at events around the world.  There is a lot to do in 2026...

What We Learned From Our 2025 Stablecoins in Focus Series TL;DR  • Stablecoins aren’t just “digital money.” They’re becoming part of the infrastructure that moves value. If you’re curious about what they are, click here for a basic definition.  • Across Singapore, Washington DC, the UK, and Argentina, one theme kept coming up: blockchains are public rails for moving value. • Policy works best when it distinguishes “building the rails” (infrastructure) from “running a financial business” (intermediation). • The big question: how do we regulate open rails thoughtfully, without freezing progress or compromising trust? In 2025, stablecoins stopped being a side conversation and became a main event for payments, financial infrastructure, and cross-border coordination. Over the course of the year, the Avalanche Policy Coalition (previously known as Owl Explains) convened four invite-only events across Singapore, Washington DC, London, and Buenos Aires, alongside participation in major payments forums including the Chicago Fed Payments Symposium and Federal Reserve payments innovation event. Each stop brought new perspectives. But together, they told one story: stablecoins are not just about “digital money.” They’re about infrastructure, trust, and how value moves in a global, digital economy. Think of stablecoins like shipping containers for money. The container is standardized. What matters is the port, the rules, and the inspection system that keeps trade safe and reliable. The Common Thread: Blockchains As Public Infrastructure Across every conversation, one theme kept resurfacing. Blockchains function as public infrastructure. Unlike private payment systems, blockchains are open and publicly available. Anyone can build on them and utilize them to transact. If private payment networks are like private roads, blockchains are more like public highways. The rules still matter, but the road is open to many kinds of vehicles.  This changes the economics of payments and financial services by lowering costs, reducing barriers to entry, and enabling new business models. Stablecoins sit on top of this infrastructure and make it usable for real world commerce. In plain English: stablecoins take “public rails”for people to use to pay, save, and move value. They also give businesses new opportunities and flexibility with their customers. This idea resonated strongly at the Chicago Fed Payments Symposium, which marked its 25th anniversary. The event brought together Federal Reserve governors, presidents, staff, and senior leaders from across financial services. A full day focused on traditional payments was followed by a half day dedicated entirely to blockchain and digital assets. That shift alone signaled how far the conversation has moved… and it’s a big deal. At the Symposium, the Avalanche Policy Coalition emphasized a core principle that also guided our Stablecoins in Focus event series. Infrastructure is not the same thing as intermediation. Providing open rails is fundamentally different from acting as a financial middleman. That distinction matters for regulation, innovation, and market structure. A helpful analogy: the internet is infrastructure; a bank is an intermediary. The nature of the activity matters and policy makers should not confuse these buckets and impose the same requirements on each. We discussed this concept in detail in comment letters to the SEC Crypto Task Force in April and May, the Hong Kong regulators in August, and the Australian Treasury Department in November. Three months, four stops, common threads • Singapore showed how clear categories create confidence. • Washington DC focused on trust, guardrails, and cross-border realities. • London was about moving from “debate” to “delivery.” • Buenos Aires showed stablecoins as everyday infrastructure (no longer a faraway theory). Singapore: Clarity Through Structure and Labels Our first Stablecoins in Focus session took place in Singapore, co-hosted with King and Wood Mallesons during Token2049 week. Singapore offered a clear example of how regulatory structure can support innovation. The Monetary Authority of Singapore distinguishes sharply between stablecoin issuance and intermediation. Intermediation activities such as custody, exchange, and transfer fall under existing Digital Payment Token rules. Issuance follows defined frameworks, including an upcoming regime with disclosure requirements, reserve standards, redemption obligations, and capital thresholds. This separation creates clarity without overcomplicating the system. It gives issuers and intermediaries clear guardrails while allowing experimentation within defined boundaries. The Singapore discussion showed how confidence in policy design can encourage responsible growth and innovation. You can picture this as fewer mystery boxes and more labeled drawers. Washington DC: Payments, Infrastructure, and Trust In Washington DC, co-hosted with the Global Blockchain Business Council, the conversation shifted toward payments and market structure. Participants focused on the reality that domestic payment systems in many countries already move quickly. The value of stablecoins is not always speed at the retail level. Instead, it lies in transparency, programmability, and the ability to operate on shared public rails. Translation: stablecoins aren’t just “Venmo but on-chain.” They can be more like shared payment infrastructure that many services plug into with less friction than private systems. Cross-border payments emerged as a key challenge that stablecoins elegantly solve. Traditional systems struggle with interoperability across banks, currencies, and jurisdictions. Stablecoins face a different limitation today, namely the dominance of US dollar denominated instruments. Still, the infrastructure case was clear and an ever-growing list of other currencies have stablecoins. Public blockchains create new options for moving value globally. Think USB-C, not custom chargers: shared standards reduce friction across borders. Regulation was seen as essential for trust. With new legislative efforts such as the GENIUS Act, the United States is beginning to both show leadership and align with other jurisdictions. The mood in DC was pragmatic. Stablecoins are no longer hypothetical. They are becoming part of the financial plumbing. Once something becomes “plumbing,” people stop asking whether it’s trendy and instead start asking whether it’s safe, resilient, and well-governed. London: From Debate to Delivery London brought urgency. Co-hosted with Innovate Finance, the UK Stablecoins in Focus event focused less on defining stablecoins and more on what it would take to make them work at scale. There was broad agreement that the UK risks losing its fintech edge if stablecoin policy remains stalled between the government, the Bank of England, and the FCA. Several themes stood out. Programmable money should be understood as a platform, not a product. Innovation happens when infrastructure exists first and use cases follow. Privacy and transparency should not be treated as opposites. Institutions need confidentiality. Regulators need visibility. Market driven solutions are already emerging to support both. Basically, you can build systems where regulators get the oversight they need without broadcasting everyone’s business to the whole world. The discussion also highlighted the importance of distinguishing between retail and wholesale use cases. A single framework risks freezing innovation. Iteration and experimentation matter, especially for institutional settlement and tokenized markets. In London, the question was no longer whether stablecoins matter, but whether the UK would move quickly enough to not be left behind, even if it does not lead. It felt less like “Should we?” and more like “If not now, when?” Argentina: Stablecoins as Real World Infrastructure Our final Stablecoins in Focus event took place in Buenos Aires, co-hosted with FinLaw and Draper House. The conversation there grounded everything we had discussed elsewhere (and featured a delicious Argentinian asado with chimichurri… if you know, you know). In Argentina and across Latin America, stablecoins are not abstract policy tools. They are used for saving, payments, and cross-border transfers in everyday life. What began as a way to protect savings has evolved into real financial infrastructure. The Argentina discussion reinforced that local context matters. Payments systems, currency dynamics, and access needs differ by region. Public blockchain infrastructure allows these differences to coexist while remaining interoperable at a global level. Latin America illustrated what happens when necessity meets open technology and where openness drives adoption. Stablecoins move from theory to practice. So if our Singapore event was policy design, our Buenos Aires event was more like policy meets real life. What These Conversations Add Up To From Singapore to DC, London to Buenos Aires, one insight became clear. Stablecoins are a visible entry point into a much larger shift. Blockchains provide public infrastructure that challenges existing payment and banking rails by offering an alternative that is open, lower cost, and globally accessible. This does not mean private systems disappear. It means new market discipline is introduced. New forms of freedom and competition emerge.  Infrastructure is not the same as intermediation. Regulation should reflect that distinction. When it does, good actors enter the market. When it does not, risk increases. So, how are we regulating the rails, the vehicles, or the drivers? If we mix those up, we get confusing rules and worse outcomes. These events left us optimistic. Even though the answers were not always simple, the conversation is finally catching up to the technology. Payments and stablecoins will continue to command attention, and rightly so. What matters now is building policy frameworks that recognize public infrastructure as a new and legitimate way to move value. And importantly: doing it in a way that preserves trust, because payments are trust systems first. At the Avalanche Policy Coalition, we will keep convening, listening, and translating these global perspectives into clear policy conversations. The future is being built on open rails. The question is how thoughtfully we choose to govern them.  Want to stay updated on our future events? Subscribe to our newsletter and follow the Avalanche Policy Coalition on X, Linkedin, and Instagram.