UST De-peg Can Trigger Stablecoin Regulation by US Treasury By The End Of 2022

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US Treasury Secretary Janet Yellen has used the TerraUSD (UST) debacle to call for more stablecoin regulation in a recent speech.

“A stablecoin known as TerraUSD experienced a run and decline in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks.”

On Monday, Terra’s UST stablecoin lost its peg to the US dollar following a dramatic market correction and a loss of its collateral.

Yellen added that she thinks it would be” ​​very appropriate” to pass regulation, preferably by the end of this year.

Last month, the former Fed chair made similar statements regarding stablecoins in prepared remarks on digital assets.

“Already, the Treasury has worked with the President’s Working Group on Financial Markets, the FDIC, and OCC to study stablecoins, a type of cryptocurrency pegged to a stable source of value, often the US dollar,” Yellen said.

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“Stablecoins raise policy concerns, including those related to illicit finance, user protection, and systemic risk. And, they are currently subject to inconsistent and fragmented oversight.

To peg their stablecoin to a dollar, most issuers say they back their coins with traditional assets that are safe and liquid. This way, whenever you want to trade your stablecoin back into a dollar, the company has the money to make the exchange. But, right now, no one can assure you that will happen. In times of stress, this uncertainty could lead to a run.”

Like other federal officials in the US, Yellen wants central bank digital currencies (CBDCs) to act as the safer alternative to privately issued stablecoins. In the same remarks, Yellen said part of President Biden’s recent executive order on digital assets calls for an examination of how CBDCs might connect or interact with stabecoins.

“How might a US CBDC interact with existing national currencies, foreign CBDCs or private stablecoins?” she asked, adding “We need to consider these important questions in the context of the central role the dollar plays in the world economy.”

Yellen said the Treasury plans on releasing a “comprehensive report” on cryptocurrencies and stablecoins shortly, as part of a request from the President’s Working Group on Financial Markets (PWG).

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