The Bank of England is close to setting the rules for sterling stablecoins. We have responded to its latest consultation with one focused recommendation: the reserves that issuers hold at the Bank should earn a return. It is a small change, and we think it would make a real difference to whether sterling stablecoins get built in the UK at all.

The problem

The Bank's revised framework is a genuine improvement. It replaces rigid per-person holding caps with a temporary issuance guardrail, introduces a Central Bank Liquidity Facility, and cuts the share of backing assets that must sit in unremunerated deposits at the Bank from 40% to 30%. We welcomed all of this.

But one feature works against the Bank's own goal of a competitive market: the deposits issuers must hold at the Bank earn nothing.

A regulated issuer cannot pay interest to coinholders and does not lend. Its costs — compliance, audit, safeguarding, operations — come out of the return on its backing assets. So a rule requiring a large slice of those assets to earn zero acts like a standing charge on issuance. At the proposed 30% floor and current rates, an issuer gives up roughly 113 basis points of yield across its whole reserve before paying a single cost. An issuer elsewhere that can hold interest-bearing government securities carries no such drag.

The predictable result is not that issuers absorb the charge here; it is that sterling issuance becomes less attractive to build than issuance in other currencies. That risk is concrete: the stablecoin market today is around 99% dollar-denominated, supported by regimes that let issuers hold interest-bearing reserves.

The fix

We have asked the Bank to pay a return on issuers' deposits. It is the cleanest available fix:

• It does not touch financial stability. Remuneration is a pricing decision on the deposits, not a change to their size or composition. The Bank's stability calibration stays exactly as it is.
• It is consistent with what the Bank already does. The Bank remunerates the reserves commercial banks hold with it. Doing the same for stablecoin issuers extends no credit and pays nothing to coinholders. It simply stops treating one form of privately issued sterling money worse than its equivalents in other currencies.
• It aligns with the UK's own ambition. HM Treasury's Wholesale Digital Markets Champion has recognised a need for sterling stablecoins to be issued at scale. Remuneration is a direct, low-cost way to help deliver that.

Why it matters beyond payments

Sterling stablecoins are not just a retail payments story. As UK wholesale markets tokenise, regulated stablecoins are the natural on-chain settlement asset — the thing that moves when a tokenised instrument changes hands — and decentralised protocols are the infrastructure layer these markets are being built on. If the only credible regulated stablecoins are dollar-denominated, tokenised sterling activity will tend to settle in dollars.

Our interest here is primarily as a user of stablecoins rather than an issuer. The Aave Protocol is one of the largest venues in which stablecoins are supplied and borrowed, and today that activity is overwhelmingly in dollars. A deeper supply of high-quality regulated stablecoins, including in sterling, would directly benefit the protocol and the people who use it.

The Bank has built a thoughtful framework and has already moved in the right direction on backing assets. Remunerating issuer reserves would complete that direction of travel, and give sterling a fair chance to compete in the next generation of money.