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Yellen Renews Call for Stablecoin Regulation After Terra’s algorithmic stablecoin tumbles

TechCrunch | Jacquelyn Melinek | May 10, 2022

Janet Yellen US Treasury secretary - Yellen Renews Call for Stablecoin Regulation After Terra's algorithmic stablecoin tumblesStablecoins have been a hot topic both on and off Capitol Hill. Earlier today, U.S. Treasury Secretary Janet Yellen pushed for regulation during an annual testimony in front of the Senate Banking Committee, at a time where Terra’s algorithmic stablecoin UST struggles to retain its peg.

US Treasury Secretary, Janet Yellen, said:

New products and technology may present opportunities to promote innovation and increase efficiencies. However, digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary.

A stablecoin known as TerraUSD experienced a run and declined in value, [which] illustrates that this is a rapidly growing product and there are rapidly growing risks.  It would be highly appropriate for stablecoin regulation to occur by the end of 2022 because there are “many risks associated with cryptocurrencies.”

See:  Terra Networks’ Stablecoin Loses Dollar Peg (again) Dives 45% (Update: to near zero) Adding More Pressure on Bitcoin

Stablecoins by definition are supposed to be stable and hold their value through a 1:1 ratio that is fixed to an external peg like the U.S. dollar or it can be tied to other assets like UST, which is backed by dollars, but also cryptocurrencies like bitcoin and Avalanche.

“The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,” the U.S. Federal Reserve said in a report on May 9.

The U.S. Treasury plans to release a report on cryptocurrencies and stablecoins “shortly” and plans to create “highly appropriate” legislation for the pegged asset by the end of 2022, Yellen said.

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