The cryptocurrency industry is shaking up to respond to concerns raised by U.S. lawmakers about stablecoins following the collapse of the TERUSD, which has wiped out billions from the cryptocurrency market.
The Blockchain Association and the Chamber of Digital Commerce, which represents some of the most influential crypto companies, have said that TerraUSD, known as “UST”, broke its peg last week and has raised questions from Capitol Hill since the 90% crash. .
Stablecoins are cryptocurrencies that try to maintain a stable exchange rate with Fiat currencies. The $ 163 billion space is dominated by tokens that are pegged to US dollars, such as Tether and USD coins, which preserve traditional dollar assets. Some stablecoins, such as UST, use a complex algorithmic process to create pegs.
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Capitol Hill lawmakers are questioning lobbyists over the structure of the UST, seeking to determine whether its collapse is preventable and whether other stable coins could suffer the same consequences. Lobbyists are urging lawmakers not to be too strict on Stablecoin notation.
“One of the things we’re warning the mountains about is that we don’t want to accidentally throw a baby out with a bath, because we think stablecoins are a really important part of the crypto ecosystem,” said Christine Smith, of the blockchain association. Executive Director.
As the cryptocurrency market exploded, reaching $ 3 trillion in November, policymakers’ scrutiny increased. In response, the crypto industry expanded its presence in Washington, spending $ 9 million on lobbying in 2021, according to Public Citizen. The Blockchain Association and the Chamber of Digital Commerce spent $ 900,000 and $ 426,663, respectively, while crypto giants Coinbase Global Inc and Ripple Labs spent $ 1.5 million and $ 1.1 million, respectively.
The growing impact of the industry will be examined as it seeks to capture the consequences of the UST and the larger crypto market crash, which shrunk from $ 1.98 trillion to $ 1.3 trillion in just six weeks due to investor fears over rising interest rates.
Several draft Stablecoin bills are currently floating around Congress. Although analysts say lawmakers focused on midterm congressional elections are unlikely to pass any of them this year, recent crypto market turmoil has caught the attention of many lawmakers.
“There are a lot of people in Congress who are interested in bringing in a regulatory framework to prevent this from happening again,” Smith said.
President Joe Biden’s administration has focused primarily on dollar-backed stablecoin rules. A report led by the Treasury Department in November recommended that Congress regulate stablecoin issuers, such as insured depository institutions, but did not cover the algorithmic stablecoin.
Lobbyists need to change behavior quickly and educate lawmakers about the differences, they say.
“All recent legal proposals have been Fiat-backed,” said Cody Carbone, policy director at the Chamber of Digital Commerce. “We thought we’d do well in education because we’re in that opportunity, and now we have to expand it.”
Although group members do not currently operate algorithmic stablecoins, the chamber is creating talking points to explain how they work, Carbon said. Regulators have warned that US-dollar stablecoins could be vulnerable to run-offs if users lose confidence, a fear that partially ended last week: after UST broke its peg, the largest stablecoin, Tithar, briefly broke its peg as well.
“It’s basically a call to action, because not all money is created equal, and what is believed to be stable may not actually be stable,” said Jonathan Dharmapalan, CEO of e-Currency, a digital currency technology provider. Although Smith of the Blockchain Association agrees that legislation is not forthcoming, the UST problem “certainly exacerbates that need,” he said.