TerraUSD fiasco fuels calls for stablecoin regulation

TerraUSD’s value spiraled this week after depegging from a 1:1 value with the US Dollar. Its value hovered around 31 cents this morning, but it’s more than doubled since then to 69 cents.

Why should we care?
Regulators are using the collapse of TerraUSD—which uses an algorithm, not fiat currency pegging, to sustain a value equal to the US Dollar—to justify rapid regulation of stablecoins. In an appearance before the Senate Banking Committee yesterday, Treasury Secretary Janet Yellen said that stablecoin-related legislation being passed by the end of the year would be “very appropriate.” “The outstanding stock of stablecoins is growing at a very rapid rate, and we really need a consistent federal framework,” she said. She also said she would “look forward to working with… members of Congress, to devise legislation that would accomplish that.” Retail investors are suffering heavy losses in the meantime, with virtually anyone who bought crypto in 2021 now in the red given a nosedive in crypto markets. (Granted, anyone who bought tech stocks over the past year is in a similar situation, says Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group.) Stablecoins may actually live up to their name by the end of the year, being forced to hold fiat currency as collateral; until then, stablecoins are a misnomer—if not false advertising.