How do the UK and US seek to regulate stablecoins after the UST collapse?
Because of potential issues with conversion into fiat currency, stablecoins are one of the financial system’s risk areas. In this approach, the regulator classified stablecoins alongside certain forms of financial market products and bonds. US Treasury Secretary Janet Yellen has encouraged US lawmakers to create a coordinated government framework for stablecoins to address financial stability threats.
Let’s also remember that during the fall of the cryptocurrency market, the Terra ecosystem algorithmic stablecoin TerraUSD (UST) lost its peg to the US dollar once more. On the evening of May 10, the asset’s price plummeted below $0.62. (according to Coinbase). Because of the situation, Binance temporarily halted withdrawals from the blockchain Terra.
Remark: TerraUSD is one of the most popular dollar-pegged stablecoins. Its capitalization tops $16 billion, according to CoinGecko. Because UST is issued via the LUNA native cryptocurrency burning process, the prices of the two assets are highly connected.
The US and stablecoins
The authors referenced the Financial Markets Working Group under the United States President’s report on the dangers connected with stablecoins. Also, they recommended putting token holders on par with banks. In addition to meeting capital and liquidity criteria, the entities appear to be transparent at the federal level.
Janet Yellen mentioned that UST had gone insolvent and had lost value. She contends that this demonstrates that this rapidly developing product has financial stability issues, which is why a robust regulatory framework is required.
Stablecoins in the UK
The Treasury Department of the United Kingdom has opted to continue regulating stablecoin as legal money. While the cryptocurrency community considers it positive, it comes as a surprise given the recent demise of one of the most popular algorithmic stablecoins, Terra (UST).
The report emphasizes the Treasury Department’s aim to regulate stablecoins across the United Kingdom, which was announced in the Queen’s statement. This will provide the framework for crypto service providers to function and expand in the UK, while also guaranteeing financial stability and strong regulatory requirements. This facilitates new technologies to be used safely and securely, according to the agency’s statement. The new laws, however, do not aim to apply to algorithmic stablecoins such as Terra’s UST, but only to ones that are truly backed by real assets.
Remark: TerraUSD lost its link to the US dollar due to an outflow of assets from the Anchor protocol caused by a fall in the rate of return on deposits to 17.87 %.
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