Yellen: UST Collapse Could Have Been Avoided With Rules for Stablecoin Issuers

The framework legislators should use for stablecoins has already been introduced, Yellen said

article-image

BLOCKWORKS EXCLUSIVE ART BY AXEL RANGEL

share

key takeaways

  • US Treasury Secretary Janet Yellen doubled down on her plea for stablecoin regulation
  • Stablecoin issuers need to be federally insured depository institutions, she said

Amid the ongoing collapse of Terra’s UST stablecoin that has roiled broader crypto markers in unprecedented fashion, regulators in the US are making a renewed push for policy requiring stablecoin issuers to be treated like banks. 

“We’ve just had over this last week with Terra and with Tether an illustration of the risks associated with stablecoins…there can be runs,” Yellen said Thursday during testimony before the House of Representatives Financial Services Committee. “We invented a good regulatory framework for dealing with this, and that is a federally insured depository institution.”

The regulatory framework in question is the November joint report on stablecoins from the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

“To address risks to stablecoin users and guard against stablecoin runs, legislation should require stablecoin issuers to be insured depository institutions, which are subject to appropriate supervision and regulation, at the depository institution and the holding company level,” the report said. 

The issue with UST, other lawmakers say, is that as an algorithmic stablecoin, it is much more vulnerable to de-pegging risks. UST is designed to trade in tandem on a one-to-one basis with the US dollar. Regulation around reserve reporting is essential, according to Sen. Pat Toomey, R-Pa., who proposed his own stablecoin regulation in April.

“If Congress does not act in this space, then the danger is, at some point, a fiat-backed stablecoin might lose its dollar peg,” Toomey told reporters Wednesday. “And that could not only be very problematic for consumers who lose money, but it could have repercussions.” 

This is not the first time that regulators have shown interest in Terra. 

The SEC served Terra founder Do Kwon during the Mainnet Conference in New York City in September 2021. The subpoenas focused on the Mirror Protocol, a decentralized finance (DeFi) project built on Terra that creates synthetic versions of real assets and securities. 

In October, Terraform Labs (TFL) responded to the SEC, arguing that it is outside of the watchdog’s jurisdiction. A district court in New York sided in February with the SEC and ordered TFL and Kwon to comply with the subpoenas.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2024

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Permissionless is a conference for founders, application developers, and users. Come meet the next generation of people building and using crypto.

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

4.png

Research

This months PPGC covered four main areas. Firstly, debriefing the progress and status of the mainnet implementation of the Ahmedabad hard fork. Secondly, a retrospective on the testnet phase of the Ahemdabad Hard Fork. Thirdly, an update on PIP-36 which involves replaying failed state syncs. Lastly, PIP-47 which pushes upgrades to the Polygon Protocol Council.

article-image

Institutions to test out the settlement of “digital assets and currencies” on a network that annually carries more than 5 billion financial messages

article-image

After Bitwise’s XRP ETF filing this week, one industry watcher notes: “Politics will determine whether this happens soon or in a few years”

article-image

Plus, a look back at some of the SEC’s biggest enforcement moves under Gurbir Grewal

article-image

The forward-looking financial system is being championed by several contributors to India’s UPI digital money system

article-image

Multiple teams are pursuing integration cross-chain and off-chain

article-image

An SEC spokesperson told Blockworks the Ripple judgment clashes with Supreme Court precedent and securities laws