The global race to implement smart crypto regulation is accelerating. In recent months, the U.S. surged ahead, enacting a stablecoin bill and advancing market structure legislation — both with broad bipartisan support.
Across the Atlantic, the United Kingdom is defining its own role in shaping the future of cryptoassets and blockchain networks. New legislation introduces intermediary licensing for crypto exchanges, agents, and dealers, as well as bespoke disclosure and market abuse regimes for cryptoassets, creating consumer protection and transparency obligations. By next year, the Financial Conduct Authority (FCA) aims to finalize policy statements related to stablecoins, cryptoasset lending, staking, and more.
While U.S. legislation — with its emphasis on consumer protection, regulatory clarity, and innovation — is aiming to set the global standard, the UK has a narrow but significant window to carve out a competitive position of its own. Roughly 12% of UK adults own or have owned crypto, an increase from just 4% in 2021. A recent economic analysis estimates that blockchain firms could contribute £40bn to the UK economy by 2035.
Proactive, effective cryptoasset regulation can ensure that London not only remains a hub for traditional finance but also becomes a center of responsible crypto innovation. Doing so can help realize the government’s number one mission — economic growth — by unlocking new opportunities for businesses and citizens.
In what follows, we provide an overview of U.S. crypto policy progress and propose four measures that the UK can enact to safeguard its citizens and support local blockchain businesses, while positioning itself as a leader in blockchain innovation for decades to come.
U.S. direction of travel
In recent months, the U.S. has made considerable progress in the development of an effective regulatory framework for cryptoassets and blockchain systems. In July, the President signed the first substantive piece of U.S. crypto legislation into law, and the U.S. House of Representatives advanced a major “market structure” bill with broad bipartisan support. The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) sets out clear rules for stablecoins, while the U.S. House-passed CLARITY Act (Digital Asset Market Clarity Act) would establish a regulatory framework for blockchain systems.
As federal legislation comes online, U.S. regulators are also working to provide clarity. In August, the U.S. Securities and Exchange Commission (SEC) launched “Project Crypto” to enable U.S. capital markets to move onchain. In a recent speech at the Federal Reserve Bank of Philadelphia, SEC Chairman Atkins outlined the agency’s forthcoming cryptoasset taxonomy, defining common token types such as “digital collectibles” and “digital tools,” and specifying that in his opinion neither is a security.
Significantly, Chair Atkins’ taxonomy aligns with proposed U.S. legislation in its focus on “network tokens” (or “digital commodities” in the parlance of the CLARITY Act). As he put it, network tokens are “intrinsically linked to and derive their value from a programmatic operation of a crypto system that is ‘functional’ and ‘decentralized,’ rather than from the expectation of profits arising from the essential managerial efforts of others” and, as such, are not securities.
Establishing a fit-for-purpose token taxonomy and, in particular, clarifying rules for network tokens are crucial first steps in defining an effective regulatory regime for crypto. What makes network tokens unique among common token types is the way they accrue value. The network token ETH, for example, derives its value from the operation and utility of the Ethereum network, not from the efforts of a centralized company. Information about a company’s financial condition or management team is therefore not relevant to understanding ETH’s value or risks. By contrast, a share of Apple stock reflects exposure to the performance and decisions of a single company, making standard issuer-style disclosure essential.
As a result, network tokens can have similar trust dependencies and risks as financial instruments during early stages, when a project is still controlled, but then evolve into decentralized systems that eliminate information asymmetries through onchain transparency. Once control is eliminated, their risk profile aligns more closely with commodities such as gold or foreign exchange, rather than financial instruments.
As the U.S. makes progress via its legislative process and agency-led efforts, it is more important than ever that the UK advances its own crypto roadmap. Blockchain technology is inherently global. Decentralized protocols operate across jurisdictions, enabling users to engage in truly borderless peer-to-peer interactions without intermediaries. It is critical that leading nations like the UK put in place effective cryptoasset regulation. In what follows, we provide four recommendations to that end.
#1: Adopt a control-based decentralization framework
The cornerstone of a modern cryptoasset regime should be a control-based decentralization framework — one that objectively determines when a blockchain system or network token is decentralized and, therefore, eliminates risks in a manner that justifies different regulatory treatment.
By operating in a transparent manner absent human control, decentralized systems can mitigate the risks addressed by many regulations. Recognizing this, a recent policy note from HM Treasury relating to the new UK cryptoasset regulatory regime and an FCA consultation paper acknowledge that systems that are truly decentralized warrant different regulatory treatment than centralized intermediaries.
But the government stops short of answering the critical question: What exactly makes a system “decentralized”? Without clear, objective criteria for defining decentralization, firms lack the certainty they need to build in the UK, and are likely to leave for jurisdictions offering clarity. Worse still, this gap risks harm by enabling bad actors to falsely claim that they are decentralized and seek to avoid regulation — at users’ peril.
Acknowledging this gap, the FCA recently proposed to separately consult on future guidance regarding the application of the new UK regime to DeFi (DeFi Guidance) covering how decentralization and control will be considered based on the degree to which a cryptoasset activity is controlled by an identifiable entity. As the FCA progresses its work on this guidance, we recommend that it adopts a control-based decentralization framework. This framework would give UK regulators a test to implement the new cryptoassets regime (and in particular the DeFi Guidance) in a consistent and objective way that is merit- and technology-neutral. The key premises of this approach are that:
- Decentralization can be defined in terms of control, and measured according to specific, objective criteria.
- When control is eliminated, many risks are ameliorated, so the application of regulation should be limited; conversely, when control is present, risks persist, so traditional (but modernized) regulatory approaches should be used.
This framework is already gaining ground in the United States. The CLARITY Act (CLARITY) and the Responsible Financial Innovation Act (RFIA), proposed in the U.S. Senate, both advance a control-based decentralization framework.
CLARITY utilizes its decentralization framework to accomplish three goals:
- It establishes seven clear, measurable standards for assessing whether a blockchain system and its related network token are no longer under the control of an individual or coordinated group.
- It uses a subset of these standards to assess whether a blockchain system is sufficiently disintermediated such that it should qualify for a safe harbor from the law’s intermediary regulatory regime.
- It tailors its disclosure regime to account for the different disclosures that may be suitable depending on whether a project is controlled or not.
CLARITY’s seven standards focus on three types of control:
- Operational Control: the ability for a party to unilaterally censor, or override network operations.
- Economic Control: the ability for a party to retain the power to extract value from the system through privileged monetary rights, such as unvested cryptoasset allocations or privileged cryptoasset creation authorities.
- Governance Control: the ability for a party or coordinated group to pass protocol governance proposals unilaterally or through offchain influence.
If adopted, we recommend that the FCA tailors its control-based decentralization framework according to applicable risks, implementing it in a manner that achieves the goals of specific components of the regulatory regime, without imposing unnecessary requirements.
For example, in differentiating the trust dependencies and risks of network tokens from ordinary financial instruments, risks arising from operational, economic, and governance control must all be considered. Where such risks are not eliminated, parties can leverage their control over the system to extract value, thereby materially impacting the potential value of the system’s network token. Said differently, whoever controls a system (a company, a blockchain system, etc.) controls the risks associated with that system and can unilaterally affect or structure its risk. As such, addressing user risks with respect to a specific network token requires the elimination of all of these mechanisms of control in relation to the token and its underlying blockchain system.
Fulfilling the goals of the intermediary licensing rules with respect to decentralized finance (DeFi), however, only requires eliminating operational control. As long as no individual or commonly orchestrated group retains the ability to control user funds or transactions or censor, or override network operations, then the risks that the intermediary licensing rules intend to address are eliminated. By contrast, whether a DeFi system has eliminated economic or governance control is not relevant, because neither impacts whether transactions through the system give rise to intermediary-related risks. Accordingly, with respect to DeFi, we believe that in its DeFi Guidance the FCA should provide clarity on the application of the intermediary licensing regime establishing that DeFi systems that have eliminated operational control do not involve a clear controlling person and, therefore, do not need to comply with the intermediary licensing rules.
In these respects, U.S. legislation provides helpful examples. Both CLARITY and RFIA apply transfer restrictions to limit the ability of a project’s insiders (founders, employees, investors, etc.) to engage in resales of a project’s network token until control over the network token and its underlying blockchain system has been eliminated. With regard to DeFi systems, both CLARITY and RFIA establish that DeFi systems are exempt from the intermediary licensing regimes proposed by these bills if operational control has been eliminated.
In implementing the cryptoasset regulatory regime, it is also critical that the FCA clarifies that the intermediary licensing regime does not apply to other participants and technologies that do not control user assets or transactions and, therefore, do not give rise to the risks that this regulation is intended to address. For example, developers and providers of non-custodial software that enables users to transact cryptoassets directly via blockchains do not pose intermediary risks. Because they do not possess operational control or control user assets or transactions, they cannot mishandle them, do not give rise to conflicts of interest, or otherwise pose any principal-agent risks that intermediary regulation is intended to mitigate. Therefore, in its DeFi Guidance, the FCA should clarify that these participants are not considered within the perimeter of this regime.
It is also crucial that the FCA clarifies that regulatory obligations do not apply to decentralized protocols, the blockchain networks and smart contract protocols by which cryptoasset transactions are securely recorded and verified without intermediaries. As we’ve elaborated elsewhere, it’s not technically feasible for such protocols to comply with regulations, which often require subjective determinations. Reconciling regulations that often differ — and in many cases conflict — across jurisdictions is likewise not possible for global decentralized protocols. Moreover, applying regulation to protocols is unnecessary to achieve the goals of the government’s regime, which can be realized by imposing rules on centralized intermediaries.
These goals can be achieved through two measures:
- In its DeFi Guidance, the FCA should issue guidance on the application of the intermediary licensing regime to DeFi clarifying that the activities of technical service providers such as node operators, validators, and developers and providers of front-end interfaces or similar software who do not have control over user assets or transactions are not considered within the perimeter of this regime.
- The FCA should clarify that protocols, themselves, are not subject to regulatory obligations.
Setting out such a framework in FCA rules and guidance and applying it in the implementation of the regulatory regime would have benefits for entrepreneurs, regulators, and users.
- For startups, it would provide a predictable, actionable compliance roadmap, incentivizing them to choose the UK. Projects could start centralized but understand the concrete steps necessary to achieve decentralization.
- For regulators, it would form the basis of an objective, merit- and technology-neutral approach to implementing the cryptoasset regime.
- And for consumers, it would preserve protections while unlocking the core innovation of blockchain networks, decentralization, which benefits them in several ways.
#2: Calibrate disclosure requirements for network tokens
When it comes to network tokens, traditional issuer-centric disclosures — focused on information about management personnel, business strategy, or financial performance — only make sense while the underlying blockchain system is controlled by an issuer. In a control-based decentralization framework, once control is eliminated network tokens derive their value from the functioning of a decentralized network, which works transparently and without human control or intervention. All relevant information about network tokens that have eliminated control is therefore publicly available through onchain data. This is what makes network tokens fundamentally different from financial instruments. And this transparency and lack of control ensures that all market participants are equally situated with respect to the information needed to assess a given network token.
Imposing traditional disclosure rules on network tokens also runs the risk of undermining decentralization and misleading consumers. Such rules could effectively force these networks to forgo decentralization or to recentralize to comply with issuer-oriented requirements, and may mislead users by suggesting that there is a controller of the network token attempting to drive its value. Therefore, when it comes to network tokens, a calibrated disclosure regime would be most appropriate.
As such, disclosure requirements applied to these tokens should begin by being “issuer-centric” but evolve to being “network-centric” after control is eliminated, emphasizing relevant onchain information about network functionality, governance, and economic mechanisms. After all, with respect to network tokens, this transparently viewable information is ultimately what is relevant for investors and users. To effectively calibrate disclosure requirements for network tokens, we recommend the FCA issue guidance providing for a tailored set of disclosures for this unique type of cryptoasset. Such guidance aligns with the FCA’s proposal to require cryptoasset trading platforms to establish risk-based, objective admission criteria, and would help such firms determine what admission and disclosure criteria to require for network tokens.
#3: Introduce protections against market abuse
A control-based decentralization framework should also guide the design of the UK’s cryptoasset market abuse regime. Where control persists — particularly during the early stages of a project — risks of insiders exploiting information asymmetries remain high and warrant targeted safeguards.
While blockchain systems can ultimately eliminate control through decentralization, many projects undergo transitional phases during which founders, developers, or early contributors retain privileged information and material token holdings. During these periods, there is a risk that insiders will leverage asymmetric information to the detriment of users. Bad actors could, for example, rapidly sell significant holdings after a token launches, taking advantage of inflated prices and then triggering sharp declines once supply floods the market. Such behavior harms investors, undermines consumer confidence, and ultimately stymies innovation.
To address this, the UK should incorporate insider restrictions into its forthcoming cryptoasset market abuse regime. Specifically, a mandatory post-listing lock-up period should apply to insiders (founders, staff, and early contributors) while a project remains controlled. This measure would prevent insiders from using their privileged position to manipulate token prices before a system achieves decentralization.
As discussed above, we believe CLARITY and RFIA provide helpful examples in this regard. By prohibiting insiders from selling before a project has achieved decentralization by eliminating control, CLARITY and RFIA mitigate market abuse risks.
Such restrictions should be proportionate and time-limited, phasing out once objective decentralization criteria are met. In line with this, the final statutory instrument includes a prohibition on insider dealing, and the FCA is proposing to require cryptoasset trading platforms, as part of their due diligence processes, to review and verify lock-up arrangements with respect to a given cryptoasset. While these are helpful steps, they do not go far enough. Introducing control-based restrictions on insiders would ensure that users are protected from information asymmetries arising during the early stages of a project’s development. By tying insider protections directly to control, regulators can ensure that users are protected from control-related risks while a project remains centralized and encourage projects to achieve decentralization.
Embedding these measures would uphold the fairness, transparency, and integrity of UK markets while signalling that the government is committed to responsible innovation.
#4: Align UK and U.S. approaches to stablecoin regulation
The U.S. and the UK share more than robust capital markets and world leading financial institutions: Historic collaboration between the two nations has led to opportunities for investors, businesses, and market participants in both countries. In recognition of this, Chancellor of the Exchequer Rachel Reeves and Treasury Secretary Scott Bessent met in London in September to launch the Transatlantic Taskforce for Markets of the Future. This partnership aims in part to identify ways to collaborate on digital asset policy, improving the connection between the two countries in the service of growth and competitiveness.
We believe a key area that this taskforce should focus on is stablecoin regulation. Though only a decade old, stablecoins now rival the world’s largest payment networks in transaction volume. Around the world, they will enable quicker, programmable payments and cut out rent-seeking middlemen.
Both nations are currently advancing stablecoin rules. In spring of 2025, the FCA published Consultation Paper 25/14 setting out a proposed regulatory framework for stablecoin issuance. Over the summer, President Trump signed into law the “Guiding and Establishing National Innovation for U.S. Stablecoins” (GENIUS) Act. Yet to date, the two countries have been largely siloed in their development of their stablecoin regimes.
International collaboration is necessary to realize the full benefits of stablecoins. That’s because stablecoins are global by design. Treating them as solely domestic payment instruments risks fragmenting liquidity and undermining efficiencies. The UK, as a world leader in financial services, has the opportunity to position itself as a bridge jurisdiction for stablecoin innovation.
The U.S. GENIUS Act explicitly creates a pathway for reciprocity with “comparable jurisdictions,” allowing stablecoins to operate across borders where regulatory outcomes align. This approach recognizes that if the core risks — redemption, reserves, governance, illicit finance — are mitigated to equivalent standards, duplicative localization requirements or additional regulatory requirements treating such comparable foreign-issued stablecoins differently would be unnecessary. As it continues to develop its stablecoin regulatory framework, the UK should do the same.
Specifically, the U.S. and UK should establish a transatlantic corridor to enable their use in wholesale markets and payments as part of cross-border commerce, allowing both GBP- and USD-denominated stablecoins to interoperate. To support this, the two countries should align on regulatory approaches, promoting best practices and also pursuing mutual recognition with other jurisdictions to prevent duplicative or conflicting compliance requirements for well-regulated firms.
To do so, we suggest the UK ensures that its regulatory standards for UK-licensed stablecoin issuers are designed to be compatible and equivalent with those being developed in the U.S. under GENIUS. This would maximize the possibility of the UK being designated as a comparable jurisdiction by the U.S. And to the extent the UK proposes to treat foreign-issued stablecoins differently under its stablecoin regulatory framework, it should also embed a reciprocity mechanism in its stablecoin regime, one based on equivalence criteria for comparable foreign frameworks — covering reserve composition, audit standards, and redemption rights — and enable mutual recognition of trusted foreign issuers, such as U.S. firms under GENIUS.
By taking this approach the UK can become a stablecoin hub for global finance: an environment where a GBP- or USD-backed token can circulate seamlessly on both sides of the Atlantic. If it does not, issuers will concentrate activity in jurisdictions that provide reciprocal access, and the UK risks being sidelined as a secondary market.
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The UK is at a pivotal moment. Around the world, governments are racing to design frameworks that both harness and safely govern crypto innovation. With clear, forward-looking regulation, the UK can do more than keep pace — it can lead.
If implemented, these steps would give entrepreneurs confidence to build in Britain, attract investment and talent, and secure the country’s place as a global hub for responsible blockchain innovation — driving economic growth while setting a global standard for smart, effective cryptoasset regulation.
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