Sunday, December 4, 2022

Regulators Are Paying More Attention To UST Than Ever Before

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Regulators are paying more attention to UST than ever before due to the collapse of the algorithmic stablecoin TerraUSD so let’s read more today in our latest cryptocurrency news.

Luna collapsed, TerraUSD crashed and now this is becoming a big thing. Some analysts think that the UST collapse is as dramatic as the Libra collapse as well. This is why regulators are paying more attention to UST now and are looking at it as a question of whether esoteric products like algorithmic stablecoins are safe for investors as well as whether there are broader financial stability concerns among them.

The introduction of the Libra stablecoin project led to plenty of regulatory approaches and the certainty that sooner or later, the government will have rules in place for the stablecoins and how they operate. However, all of the efforts are focused on asset-backed stablecoins and not the algorithmic ones. The novel structure might result in the new approaches from the regulators and the major difference is that Libra never launched so there haven’t been any asset-backed stablecoin collapses the way there were with the UST stablecoin. The difference could lead to regulators placing a higher priority on the issue.

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In June 2019, the social media giant Facebook unveiled the Libra crypto project and despite the assurances from the company that it wasn’t seeking to take over the global payments or to create a non-US dollar-based financial system, the regulators pushed back against the project. There were quite successful but then Libra rebranded to Diem and scaled back its vision to af fraction of what was intended and ended up selling off its assets and shutting down.  Even though the project didn’t launch, the regulatory impact was huge and regulators saw stablecoins as a huge issue that they had to pay attention to.

The collapse of TerraUSD is an algorithmic stablecoin’s Libra moment and the regulators are paying more attention now than ever. The US Treasury Secretary Janet Yellen brought up Terra independently during a separate Congressional hearing on the Financial Stability Oversight Council:

“I think you’ve just illustrated that we just had this last week with Terra, and with tether in illustration of the risks associated with stablecoins, that there can be runs. And we’ve seen this historically with private monies, and we invented a good regulatory framework, I think for dealing with this, [we’re] going to try to solve the depository [framework].”

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