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Stablecoins Still Lack Institutional Confidence Despite Crypto Growth

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Stablecoins Still Lack Institutional Confidence Despite Crypto Growth

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Since the Royal Mint in the UK canceled its stablecoin project (RMG) after a US-based exchange group withdrew their support before the digital token launch, questions are now being asked about the lack of institutional support for such projects.

The Royal Mint is the government-owned mint responsible for producing coins for the United Kingdom. The Mint quickly tried to find an alternative exchange for trading its digitalized gold after RMG withdrew its support, but due to the UK’s Finance Ministry intervention, it was forced to cancel the project at the last minute.

The result of institutions not supporting these projects is a cause for concern, maintains Alex Bosworth, a developer at the decentralized network Lightning. He commented about his disappointment when a project he was involved in folded up; warning that government’s hesitation to support stablecoins could hinder the progress of highly investable and potentially successful projects in the future.

Government institutions in the UK still tread carefully when it comes to cryptocurrencies, despite some warming to the development of projects based on blockchain fundamentals. Even some banks are showing interest, such as UK High Street Bank NatWest which recently announced that it plans to leverage DLT for the syndicated loans market. However, fears regarding crime and money laundering are still a relevant factor when government departments consider products based on digital currency.

Bosworth’s concern is that stablecoins generally require the participation of traditional institutions. He suggests that these institutions are still not fully convinced by the argument for digital currencies linked to traditional assets and may be far more prone to withdrawing from token projects without warning as a result. However, this doesn’t stop the announcements of new stablecoins. London Block Exchange (LBX) has announced its plans to launch the LBXPeg, a stablecoin backed by the UK pound.

LBX hasn’t named its banking partner yet but has suggested that one-for-one reserves will be held by a third-party bank. LBX CEO Benjamin Dives claims this crypto pound is to be the first of its kind to be launched in the UK and is optimistic about the speed of development of the new coin.

Professor of Economics at UC Berkeley, Barry Eichengreen, argues that stablecoins contain certain “weaknesses,” and are not only expensive but require a reserve that is equal to or more than the coins in circulation to ensure market stability, making government regulation complex.

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