The collapse of Terra’s UST has triggered heated debate over the future of the stablecoin, as well as a significant drop in crypto market sentiment. UST de-pegged from the dollar earlier this week and has since struggled to reclaim its 1:1 peg. Luna Foundation Guard and founder Do Kwon’s corrective initiative has done little to reverse the company’s losses.
Tether (USDT), the world’s most popular stablecoin, is also under selling pressure, trading 4% below $1. The flaw has raised concerns that governments may use it as an example to impose more stringent controls on the bitcoin sector.
Will the government ban stable coins?
Following the latest recession, the Securities and Exchange Commission (SEC) in the United States may impose more limits on the stablecoin supply. Investor protection is a recurring concern among countries lobbying for additional crypto legislation. Terra may have a point after wiping out billions of dollars in investor funds in just a few days.
Prominent crypto advocate John Deaton said that SEC Chairman Gary Gensler, and Senator Elizabeth Warren—both outspoken crypto skeptics—could use Terra’s crash as “Exhibit A” to require regulations.
In a recent interview with Bloomberg, Gensler blasted crypto exchanges for acting against the best interests of their consumers. Gensler has also dismissed several attempts to spot crypto ETFs, citing a problem with investor holdings.
UST was also addressed by US Treasury Secretary Janet Yellen during a recent Senate Banking Committee hearing. Yellen advocated for more crypto regulation to avoid future financial disasters like Terra.
Is stablecoin death a boon for CBDCs?
Governments own their own digital currency[CBDCs]Can take advantage of the current stablecoin craze to launch. Many countries, especially the US, are already working on their own digital tokens.
The Bank of England said in March that stablecoins in their current form pose a significant financial risk. It advocated for greater location regulation as well as perhaps a government-backed option.
This year, China, which has explicitly banned cryptocurrencies, launched a digital yuan. India, which is becoming increasingly anti-crypto, is also planning to launch its own CBDC.