Scoop: What’s Behind Crypto Stablecoin Crash?

By Ambar Warrick
May 12, 2022 Updated May 12, 2022
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Stablecoins a contentious topic for regulators

The crash of Terra’s UST has sparked serious debate over the future of the stablecoin space, while severely denting crypto market sentiment. UST de-pegged from the dollar earlier this week, and has since struggled to regain its 1:1 peg. Corrective measures from founder Do Kwon and the Luna Foundation Guard have done little to remedy its losses.

Tether (USDT), the world’s largest stablecoin, also appears to be under selling pressure, and is trading more than 4% below its $1 peg. This weakness has stirred up speculation that governments could use this as an example in issuing tighter regulations on the cryptocurrency industry.

Will the government ban stablecoins?

The U.S. Securities and Exchange Commission (SEC) could impose more restrictions on stablecoin issuance in the wake of this recent crash. A common theme among governments calling for more crypto regulations is investor protection. With Terra wiping out billions of investor money in days, they may have a strong point.

Prominent crypto lawyer John Deaton said SEC Chair Gary Gensler, and Senator Elizabeth Warren- both vocal crypto skeptics- could use Terra’s crash as “Exhibit A” for the need for regulations.

Gensler recently criticized crypto exchanges for acting against their customers’ best interests, in an interview with Bloomberg.  Gensler has also shot down multiple attempts at a spot crypto ETF citing concerns over investor holdings.

U.S. Treasury Secretary Janet Yellen also recently mentioned UST during a Senate Banking Committee hearing. Yellen called for better crypto regulation to prevent possible financial risks, such as Terra’s crash.

Stabelcoin Death A Boon For CBDCs?

Governments could use the current stablecoin rout to roll out their own Central Bank Digital Currencies (CBDCs). Several countries, including the United States, are already working on developing their own digital tokens.

In March, the Bank of England said stablecoins in their current form posed a major financial risk. It had called for better regulation of the space, and possibly, even a government-backed alternative.

China, which has outright banned cryptocurrencies, introduced a digital yuan this year. India, which is adopting an increasingly anti-crypto stance, also has plans to introduce its own CBDC.

 

With more than five years of experience covering global financial markets, Ambar intends to leverage this knowledge towards the rapidly expanding world of crypto and DeFi. His interest lies chiefly in finding how geopolitical developments can impact crypto markets, and what that could mean for your bitcoin holdings. When he isn't trawling through the web for the latest breaking news, you can find him playing videogames or watching Seinfeld reruns. You can reach him at [email protected]
The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.

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