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.
In what follows, we provide 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. 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 advanced a major “market structure” bill with broad bipartisan support. The GENIUS Act sets out clear rules for stablecoins, while the U.S. House-passed 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 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.
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.
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. The FCA recently proposed to separately consult on future guidance regarding the application of the new UK regime to DeFi, covering how decentralization and control will be considered based on the degree to which a cryptoasset activity is controlled. 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 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, where CLARITY uses seven standards to assess control, disintermediation, and tailored disclosures. CLARITY’s standards focus on operational, economic, and governance control.
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, differentiating the trust dependencies and risks of network tokens from ordinary financial instruments requires considering operational, economic, and governance control. Where such risks are not eliminated, parties can leverage their control over the system to extract value and affect the network token’s potential.
Fulfilling the goals of the intermediary licensing rules with respect to 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, the risks addressed by intermediary licensing are eliminated. However, whether a DeFi system has eliminated economic or governance control is not relevant. Therefore, DeFi systems that have eliminated operational control do not need to comply with intermediary licensing rules.
In these respects, U.S. legislation provides helpful examples. Both CLARITY and RFIA apply transfer restrictions to limit the resale of insiders’ tokens until control over the network and its underlying blockchain system has been eliminated. With regard to DeFi, both CLARITY and RFIA exempt DeFi systems from the intermediary licensing regimes if operational control has been eliminated. In implementing the cryptoasset regime, it is 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 startups, it would provide a predictable, actionable compliance roadmap, incentivizing them to choose the UK. 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.
Regarding network tokens, traditional issuer-centric disclosures only make sense while the underlying blockchain system is controlled. In a control-based decentralization framework, once control is eliminated network tokens derive their value from a decentralized network, which works transparently and without human control or intervention. All relevant information about network tokens that have eliminated control is publicly available through onchain data, so disclosure should evolve from issuer-centric to network-centric.
To effectively calibrate disclosure requirements for network tokens, we recommend the FCA issue guidance providing for a tailored set of disclosures. This guidance should emphasize onchain information about network functionality, governance, and economic mechanisms.
A control-based decentralization framework should guide the design of the UK’s cryptoasset market abuse regime. Where control persists—particularly during the early stages of a project—insiders may exploit information asymmetries, warranting targeted safeguards. Specifically, a mandatory post-listing lock-up should apply to insiders (founders, staff, and early contributors) while a project remains controlled. These measures would help protect users and uphold the integrity of UK markets while signaling responsible innovation.
The U.K. should align its stablecoin approaches with those of the United States to minimize fragmentation and enable cross-border use. The GENIUS Act provides a pathway for reciprocity with comparable jurisdictions, allowing cross-border operation where regulatory outcomes align. The UK should design its regime to be compatible with GENIUS and pursue mutual recognition with trusted foreign issuers to promote cross-Atlantic efficiency.
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 reciprocal jurisdictions, and the UK risks being sidelined as a secondary market. The UK is at a pivotal moment. With clear, forward-looking regulation, the UK can lead in responsible blockchain innovation and drive economic growth. If implemented, these steps would give entrepreneurs confidence to build in Britain, attract investment and talent, and uphold a global standard for smart, effective cryptoasset regulation.
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