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After Terra\u2019s collapse<\/a> last week, regulators across the globe have started to take aim at stablecoins.\u00a0<\/p>\n Most of the regulatory concerns have been focused on algorithmic stablecoins like Terra\u2019s UST.\u00a0 Unlike fiat-backed stablecoins like USDC and Tether which are collateralized by fiat currency or other securities, algorithmic stablecoins maintain their peg to their benchmark, usually the US dollar, via algorithmic operations encoded in their smart contracts.\u00a0<\/p>\n On May 20, Bloomberg reported<\/a> that Senator Cynthia Lummis, a Republican, and Senator Kirsten Gillibrand, a moderate Democrat, are working together on a proposal that aims to prevent crises like Terra\u2019s collapse. Their proposed bill would require stablecoins to keep 100% reserves on hand and maintain a 1-1 peg with those assets, thus ending innovation around algorithmic stablecoins.<\/p>\n U.S. Secretary of the Treasury Janet Yellen said it was \u201curgent\u201d for Congress to pass new legislation.\u00a0 \u201c[Stablecoins] run risks which could threaten financial stability,\u201d Yellen testified in a Senate Banking Committee hearing<\/a> on May 10. \u201cRisks associated with the payment system and its integrity, and risks associated with increased concentration if stablecoins are issued by firms that already have substantial market power.\u201d<\/p>\n Jake Chervinsky, Head of Policy at the Blockchain Association, had a more positive outlook. \u201cUST was in a category of its own, relying solely on its algorithmic mechanism, a risky model that many predicted might fail\u201d, he tweeted<\/a>.\u00a0 \u201cThat\u2019s far different from the many collateralized stablecoins, custodial & decentralized, which all performed well during this week\u2019s high volatility.\u201d<\/p>\n The Security and Exchange Commission (SEC) recently doubled<\/a> their crypto unit staff to crack down on abuses. \u201cThe bolstered Crypto Assets and Cyber Unit will be at the forefront of protecting investors and ensuring fair and orderly markets in the face of these critical challenges,\u201d SEC Chair Gary Gensler said<\/a> in a statement.<\/p>\n In the United Kingdom, a spokesman for Her Majesty\u2019s Treasury<\/a> revealed that it is open to stablecoins being used for payments<\/a>, but does not plan to include algorithmic stablecoins.\u00a0 Fiat-backed stablecoins \u201chave the capacity to potentially become a widespread means of payment,\u201d the government said in a report issued last month<\/a>. \u201cAn amended e-money framework can deliver a consistent framework to regulate stablecoin issuance and the provision of wallets and custody services.\u201d<\/p>\n The Bank of Canada\u2019s Stablecoin Assessment Framework<\/a> was last updated on April 8, 2021, but notes that \u201calthough stablecoins make up a small share of the cryptocurrency market, they have the potential to improve the supply and scope of financial services. However, depending on their design and evolution, this efficiency could come with significant risk to financial stability.\u201d<\/p>\n In South Korea, TerraForm Labs and its founder Do Kwon are getting sued by a major law firm for tax evasion<\/a>.\u00a0 The Block reported that law firm LKB & Partners will file its case against Kwon, a Korean national, on behalf of ordinary investors.<\/p>\n Despite Terra spending $3B<\/a> and Do Kwon\u2019s plan<\/a> to revive the ecosystem, UST has completely collapsed and now sits at $0.06<\/a>. Since Terra\u2019s collapse, the entire algorithmic stablecoin sector has been shaky.<\/p>\nOutside the U.S.<\/h4>\n
Stablecoins Under Pressure<\/h4>\n