Stablecoins have been a hot topic both on Capitol Hill and beyond. Earlier today, US Treasury Secretary Janet Yellen pushed for regulation during her annual speech before the Senate Banking Committee, while algorithmic stablecoin Terra UST struggles to maintain its peg.
“New products and technologies can provide opportunities to drive innovation and improve efficiency,” Yellen said. “However, digital assets can pose risks to the financial system and increased and coordinated regulatory attention is needed.”
Responding to questions from Senator Pat Toomey and Senator Catherine Cortez Mastro, Yellen said it would be “highly appropriate” to introduce stablecoin regulation by the end of 2022 because there are “a lot of risks” associated with cryptocurrencies.
“We really need a consistent federal structure,” Yellen commented. “I look forward to working with [Toomey] and members of Congress to develop legislation that would achieve this.”
stablecoins must by definition be stable and retain their value at a 1:1 ratio that is fixed to an external peg such as the US dollar, or can be pegged to other assets such as UST backed by dollars, as well as cryptocurrencies such as bitcoin and avalanche.
While every stablecoin in circulation is backed by a $1 equivalent reserve, there have been recent concerns about the validity of some stablecoins. For example, the algorithmic stablecoin UST fell as much as 35% from its 1:1 pegging to the dollar on May 9, when technically it should never deviate from $1.
“The stablecoin, known as TerraUSD, experienced an influx and fell in price,” Yellen said. “I think it just illustrates that this is a fast growing product and the risks are growing fast.”
Although the UST has almost fully recovered from its sharp fall on May 9, it has again approached its $1 level by about $0.91, he still hasn’t fully returned to his “stable” state. Do Kwon, founder of Terraform Labs, the organization behind UST, the LUNA cryptocurrency, and the Luna Foundation Guard (LFG), tweeted that he was “close to announcing a $UST recovery plan” but did not provide further details as of press time.
“The stablecoin sector has continued to grow rapidly and remains subject to liquidity risks,” the US Federal Reserve said in a report. report May 9.
The combined value of stablecoins has risen over the past year to around $180 billion in March 2022, with the top three stablecoins being Tether, USD Coin (USDC) and Binance USD account for more than 80% of the total market value, the report added.
According to Yellen, the US Treasury plans to publish a report on cryptocurrencies and stablecoins “soon” and plans to develop “very appropriate” legislation for the pegged asset by the end of 2022.
Credit: techcrunch.com /