• TerraUSD collapse shakes confidence in stablecoins
• Call for stronger regulation
• Jake Chervinsky stresses the importance of stablecoins
In mid-May, the TerraUSD, whose rate should actually be tied one-to-one to the US dollar, collapsed massively. Actually, such course capers should be impossible with stablecoins, but while most other providers of stablecoins have financial reserves, for example in US dollars or gold, which cover the token and thus ensure the price commitment, TerraUSD is a “decentralized” stablecoin. A complex mechanism of trading transactions with other cryptocurrencies should automatically keep the course at one US dollar per TerraUSD. There are no real US dollars behind Terra, but cryptocurrencies.
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call for regulation
Against this background, the call to push the regulation of the crypto sector is getting louder. Among other things, the US Federal Reserve recently warned of price collapses for stablecoins.
The German Federal Financial Supervisory Authority (BaFin) also sees increasing threats to general financial market stability from crypto turbulence. According to BaFin chairman Mark Branson, while the Terra crash has had little impact on the traditional financial industry, future crypto crashes could be different. Speaking at BaFin’s fourth tech conference, Branson said of a potential merging of the previously separate areas: “We don’t see that at the moment, but it could go in that direction in the future as the interdependencies with the traditional financial system become even closer”.
Warning against incorrect regulation
According to CoinDesk, however, Jake Chervinsky, Head of Policy at the Blockchain Association, calls for a “smart, thoughtful discussion of potential regulation” in this context. He reminds that despite the recent turmoil, stablecoins are an important innovation that offer numerous benefits for users. In this way, they would improve the efficiency of payment transactions, reduce costs and speed up business processes. They would also make the financial system more inclusive by allowing everyone and everywhere to participate.
“Stablecoins present too great an opportunity for us to risk getting it wrong in regulation. The US is in an international race to become the home of Web 3, so now is the time for strategic thinking and prudent action. The future of the US as a hub for global crypto innovation is at stake,” Chervinsky said.
The further procedure
Jake Chervinsky now advises those responsible to proceed in three steps: First, the regulators should develop a deeper understanding of stablecoins and also obtain the opinion of industry representatives such as the Blockchain Association.
After that, a consensus should be developed in the US Congress that is supported by both parties. According to Chervinsky, the crypto topic is too important to be fought over. Therefore, it is necessary that the leaders of both parties come to a solution together on how the crypto market can best be regulated. It is important that such a solution is ultimately decided by Congress, not by the regulatory authorities.
Finally, care must be taken to ensure that the regulations enacted are balanced and take into account the important role that US dollar-dominated stablecoins will play in keeping US finances safe for decades to come. “We need a tailored regulatory framework that takes into account the specific benefits and risks of stablecoins,” Jake Chervinsky said, according to CoinDesk.
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