Regulators from all over the world were informed of the demise of Terra and its algorithmic stablecoin TerraUSD. These assets’ low volatility did not present a problem in the past. After the Terra disaster, things, however, changed drastically. Stablecoins are already being considered as part of existing rules in nations like South Korea and others. The US seems to be following suit.
An assortment of stablecoins was observed momentarily losing their peg when Terra’s automated TerraUSD [UST] irritated them. The US government seems to be restricting its focus to algorithmic stablecoins, despite governments throughout the world keeping a watch on the situation.
The US government states that it would be unlawful to create and issue “endogenously collateralized stablecoins” in a recent draught bill.
It should be highlighted, however, that current providers have two years to update their models by deciding how to collateralize their products.
Even though Terra’s catastrophic fall took place months ago, its aftershocks are still felt today.
The U.S. Treasury is required to abide by the proposed legislation, along with dedicated research on algorithmic stablecoins and consultation with the Federal Reserve, the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Could D-Day of Algorithmic Stablecoins be near?
The community was well prepared for the heavy involvement of governments once Terra’s UST was destroyed. Therefore, the community did not appear to be shocked by the algorithmic stablecoins ban.
However, it should be emphasized that before the bill’s final version is released, the aforementioned clauses may change. Bloomberg reports that the panel in charge of it could vote as soon as next week.
Additionally, it has been revealed that Maxine Waters, the chairwoman of the House Financial Services Committee, and Patrick McHenry, the ranking member, have been collaborating and crafting stablecoin legislation.
The price of TerraUSD, now TerraClassicUSD [USTC], has fallen even as the US government plans to outlaw Algo stablecoins. The stablecoin was selling at $0.0325 at the time of publication, significantly below its $1 peg.