May 13, 2022
By Sharan Kaur Phillora
U.S. Treasury Secretary Janet Yellen pushed for regulation during an annual testimony in front of the Senate Banking Committee, at a time when Terra’s algorithmic stablecoin UST struggles to retain its peg.
Here’s what we know:
Cryptocurrency markets have about $1 trillion overall in value this week amid the collapse of a stablecoin called TerraUSD and a destabilizing plunge in Tether, currently the world’s largest stablecoin by market cap.
Referring to tighter regulations, “one place we might see some movement is around stablecoins,” SEC Commissioner Hester Peirce said during an online panel debate hosted by the London-based OMFIF policy think tank.
“That’s an area that has obviously this week gotten a lot of attention.”
In response to questions from Senator Pat Toomey and Senator Catherine Cortez Masto, Yellen said it would be “highly appropriate” for stablecoin regulation to occur by the end of 2022 because there are “many risks associated with cryptocurrencies.”
“We really need a consistent federal framework,” Yellen commented. “I really look forward to working with [Toomey] and members of Congress to devise legislation that would accomplish that.”
While every stablecoin in circulation is backed by $1 equivalent in a reserve, there have been concerns recently about the validity of some stablecoins. For example, the algorithmic-based stablecoin UST fell as much as 35% from its 1:1 dollar peg on May 9, when it should technically never be away from the $1 amount.
“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.
Image: Wikimedia commons
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.