The UK is sending mixed signals on digital assets. HMRC has just taken a major step toward fixing DeFi taxation, but builders argue the country’s financial promotions rules are still pushing stablecoin products and users offshore.
The result is a widening gap between the UK’s ambition to be a crypto hub and the practical reality of friction-heavy regulation.
HMRC’s New Direction on DeFi Taxation
HMRC’s latest consultation outcome proposes exploring a “no gain, no loss” (NGNL) framework for common DeFi actions such as liquidity pooling, single-token deposits, and crypto borrowing.
“…the government will continue to assess the merits of this potential approach, and the case for making legislative change to the rules governing the taxation of cryptoasset loans and liquidity pools,” read an excerpt in the document.
This would allow users to interact with DeFi protocols without triggering capital gains tax on every technical transaction, a long-standing issue for UK retail and institutional players.
For builders, NGNL is a meaningful shift:
- It reduces administrative burden
- Aligns the UK more closely with how major DeFi jurisdictions handle flow-based transactions
- Signals that lawmakers understand the operational mechanics of modern on-chain finance.
But the optimism ends there.
FCA Rules Are Still Driving Stablecoin Activity Offshore
While HMRC moves toward clarity, founders say the FCA’s Financial Promotions regime is creating the opposite effect, especially for stablecoin products.
Aave founder Stani Kulechov warned that the rules “are killing stablecoins,” arguing that the regime now treats all crypto assets the same, even those designed to maintain price stability.
Under these rules, and just to access basic payment-style products:
- UK users face lengthy questionnaires
- 24-hour cooling-off periods
- Extensive risk-warning overlays
For fintechs and DeFi teams, these requirements introduce friction that does not exist in the EU, US, or UAE.
Several UK builders say they have shifted launches abroad because onboarding flows in Britain are“ commercially unworkable” for stablecoin-based products, where speed and utility matter far more than speculation.
The sentiment, according to Stani Kulechov, which mirrors founders’ reservations, is that tax clarity does not matter if users cannot access the product in the first place.
The Market Impact: Capital, Talent, and Users Drift Elsewhere
Meanwhile, stablecoin adoption is increasingly shaping fintech strategy, cross-border payments, and on-chain settlement.
With MiCA now live in the EU and US regulators moving toward more tailored oversight frameworks, the UK’s inconsistent approach risks excluding the country from the fastest-growing segment of crypto utility.
Investors watching liquidity flows have noticed the shift. Local media suggests that there is a strong incentive for UK users to use non-UK platforms when buying stablecoins.
This is seen with the higher GBP-to-stablecoin activity occurring through non-UK platforms, and UK startups building stablecoin rails are increasingly incorporating in friendlier jurisdictions.
Friction-heavy onboarding drives new users toward global apps with simpler flows, reducing the UK’s competitive edge.
What London Must Fix Next
HMRC’s NGNL work is an essential step, but it cannot stand alone. UK policymakers now face a clear decision point:
- Adapt the Financial Promotions regime to distinguish between speculative crypto assets and payment-grade stablecoins, or
- Continue losing market share, founders, and innovation momentum to rival hubs.
A targeted exemption, a risk-tiered approach, or a dedicated stablecoin classification would all help restore competitiveness.
With legislation expected to progress in 2025, the next few months will determine whether the UK becomes a destination for stablecoin innovation or a case study in how regulatory friction can push an entire sector abroad.
