The Crypto Mirage: Why Tokenisation & Stablecoins Are Not the Future of UK Financial Services

For the past decade, blockchain, tokenisation and stablecoins have been paraded as the future of finance. They are often described as disruptive forces poised to reshape banking, payments and capital markets. Across keynote speeches, strategy decks and consultation papers, the same refrain echoes: “The future is decentralised.” Yet beneath the polished optimism lies an inconvenient truth. In the UK, mainstream financial institutions have shown little meaningful appetite for these technologies. Critically, customers are not demanding them either.

In an industry often driven more by hype than substance, it is time to interrogate whether these innovations truly serve a strategic purpose. We must ask whether they are real solutions or simply distractions from the deeper reform the sector actually needs.

The Promises of Tokenisation & Blockchain

In theory, the advantages are compelling. Tokenisation, the process of representing traditional assets such as equities or bonds as digital tokens on a distributed ledger, promises efficiency, faster settlement and greater transparency. Stablecoins, typically pegged to fiat currencies, aim to offer a less volatile digital means of exchange than cryptocurrencies such as Bitcoin. Blockchain itself is pitched as a tamper-proof foundation for a new financial architecture built on transparency and decentralisation.

Advocates claim these technologies can unlock fractional ownership, streamline compliance, eliminate intermediaries and reduce costs. According to the Bank for International Settlements, more than 130 jurisdictions have explored some form of tokenised asset infrastructure or central bank digital currency. In the UK, the Financial Conduct Authority (FCA) and the Bank of England have publicly supported innovation, launching initiatives such as the Digital Securities Sandbox and consulting on stablecoin regulation.

Yet ambition alone does not guarantee adoption.

Sidebar: Are Tokenisation & Blockchain the Same as Crypto?

Tokenisation and blockchain are often associated with cryptocurrencies, but they are not the same.

• Blockchain is a type of distributed ledger technology (DLT) that enables secure, transparent and tamper-resistant record-keeping. It underpins cryptocurrencies like Bitcoin and Ethereum but is also used in traditional finance for post-trade settlement, digital identity and cross-border payments.

  
  

• Tokenisation is the process of converting real or digital assets into digital tokens that can be issued, transferred and settled on a blockchain or similar system. These tokens might represent shares, bonds, property or other instruments and not just cryptoassets.

  
  

• Crypto refers specifically to cryptocurrencies and decentralised finance (DeFi) applications. These operate on public blockchains, often outside traditional regulatory frameworks.

In short, tokenisation and blockchain are technologies. Crypto is a use case. Financial institutions canand increasingly do adopt blockchain and tokenisation without engaging in unregulated crypto markets.

Institutional Indifference: Why Banks Are Not Buying In

Despite regulatory overtures and industry enthusiasm, UK banks have largely resisted integrating tokenisation or stablecoin functionality into their core offerings. Their reluctance is pragmatic, not ideological.

Firstly, the business case remains unproven. Faster settlement may appeal in theory, but in practice, UK payment systems such as Faster Payments already operate in real time for retail customers. For wholesale banking, the introduction of distributed ledger technology into post-trade infrastructure involves considerable cost, operational complexity and legal uncertainty. Without a clear commercial advantage or client demand, banks are unlikely to absorb such risks voluntarily.

Secondly, there is reputational risk. The collapse of FTX and the volatility of unregulated crypto markets have made banks wary of being tainted by association. Even stablecoins, which promise price stability, come with significant technical and regulatory challenges. These include concerns about reserve transparency, redemption rights and systemic contagion. The Financial Stability Board’s 2023 report warned that poorly designed stablecoins could pose material risks to financial stability.

As a result, most large UK banks have chosen to experiment cautiously. HSBC and Santander have tested blockchain applications in trade finance and digital custody. Lloyds and Barclays have joined cross-industry working groups. However, these pilots remain peripheral. The core retail and commercial banking services that reach millions of customers every day remain untouched.

A Customer Base That Is Not Demanding Change

More significant still is the lack of customer appetite. Despite the surge in media coverage, the average UK consumer is not clamouring for blockchain-powered alternatives. According to the Financial Conduct Authority’s 2024 consumer research, 12 per cent of UK adults now own cryptoassets, equating to approximately seven million people. While this reflects growing interest, it does not necessarily indicate meaningful or sustained use. Most engagement remains sporadic and speculative in nature, rather than integrated into day-to-day financial activity.

Trust in banks remains relatively high when compared to other sectors. Convenience, perceived safety and regulatory protection continue to define the customer relationship. Stablecoins may promise faster or cheaper transactions, but in a country where most transfers are already near-instant and cost-free, these promises hold little practical value.

Research by the Organisation for Economic Co-operation and Development (OECD) indicates that the uptake of tokenised assets and distributed ledger technology remains limited, in part due to a lack of awareness and understanding among potential users. The OECD’s 2023 report on tokenisation in financial markets observes that, despite growing institutional interest, broad adoption is constrained by educational and operational barriers. Without visible, tangible benefits that improve financial lives, there is no consumer pressure on banks to adopt or invest in these tools.

The Regulator’s Dilemma

UK regulators are in a difficult position. Keen to position the country as a global fintech leader, they have made positive overtures toward digital asset innovation. The Bank of England has consulted on the concept of a retail central bank digital currency, referred to as the 'digital pound'. HM Treasury has legislated to bring stablecoins within the regulatory perimeter under the Financial Services & Markets Act 2023.

However, this support is cautious and qualified. The FCA has imposed tight restrictions on cryptoasset promotion and consumer protection. The Bank of England has stated that any stablecoin used for payments must meet standards equivalent to traditional fiat money. Progress on the digital pound remains slow and incremental. Its full launch is unlikely before the end of the decade.

As things stand, regulators are preparing frameworks for products that have yet to find product-market fit. The UK has no meaningful sterling-backed stablecoin ecosystem. There is no functioning secondary market for tokenised securities. While the technology is maturing, the legal, commercial and operational infrastructure has yet to catch up.

A Mirage of Innovation

Are tokenisation, stablecoins and blockchain truly the future of UK financial services? The answer is no, at least not in their current form. These technologies represent a vision of finance that is technically elegant but often disconnected from the strategic realities of the sector.

Instead of retrofitting innovation into systems that work well enough already, the industry should focus on areas where technology can deliver real gains. These include enhancing anti-financial crime controls, deploying real-time fraud analytics and improving the efficiency of onboarding and KYC processes. These areas, though less glamorous than blockchain, offer measurable impact and align with both regulatory priorities and customer needs.

Innovation should never be pursued for its own sake. Nor should regulators continue to invest disproportionate energy in building sandboxes for tools with limited demand. The more useful question is not whether blockchain or stablecoins represent the future, but what specific problems they solve, for whom and at what cost.

Conclusion: Focus on the Real Future

The UK financial sector has historically thrived on combining prudence with innovation. Tokenised finance may eventually find traction in capital markets or in cross-border infrastructure. But its relevance to mainstream banking is, for now, marginal.

Until there is real demand from users and a commercially viable model for integration, tokenisation and stablecoins remain a mirage of innovation. They are highly visible, but often lacking in substance.

The real opportunity lies elsewhere. By building intelligence-led, inclusive and resilient systems that address today’s urgent challenges, the UK can lead not by following crypto’s hype cycle but by solving real-world problems through practical transformation.