Since the collapse of the TerraUSD stablecoin on May 12 and the general instability of cryptocurrencies, the US Treasury has questioned the real sustainability of these digital assets. The American and European authorities therefore plan to step up the regulation of this market.
When a stablecoin becomes volatile
The algorithmic stablecoin TerraUSD and the cryptocurrency Terra, on which it was backed, have collapsed. The devaluation of the TerraUSD is a shame for a digital currency claiming to be the equivalent of the dollar. Stablecoins were designed to bring stability to the crypto market. Because of this, their issuers are supposed to own an amount of money equivalent to the number of tokens in circulation. This is in order to guarantee their exchange for fiat currency.
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Over the past few days, its value fell by 99.8%, eventually stabilizing at around $0.15. Tether, the most popular stablecoin, also saw its value swing and fall to $0.9 before returning to around $0.95.
According to CoinGecko statistics, the stablecoin market is estimated at more than $160 billion, of which $80 billion is held by Tether.
Start framing the domain
The recent TerraUSD crash has caused panic among US and European regulators. Janet Yellen, Secretary of the Treasury of the United States, expressed to Congress the need to create a ” regulatory framework for this sector. She believes that stablecoins could eventually become a risk to financial stability. ” They present the same type of risks that we have known for centuries when it comes to bank runs added the Secretary of State on Thursday.
On May 9, in a report (pdf), the United States Federal Reserve had published its concerns about the possible depreciation of these stablecoins. ” They are backed by assets that could lose value or become illiquid, making selling impossible, in times of stress she anticipated just before the brutal fall of the TerraUSD.
In Europe, a regulatory proposal titled Mica for Market in crypto assets is under discussion. Its objective is to regulate the cryptocurrency market in European territories from 2024. This proposal focuses on 4 points: the creation of legal certainty thanks to a legal framework, support for innovation, consumer protection and the guarantee of financial stability.
Since the beginning of May, the European Parliament has been studying a bill aimed at strengthening European Union rules on transactions in crypto-assets in order to combat money laundering and the financing of terrorism.