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.


Get the news in your inbox. Explore Blockworks newsletters:

  • Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
  • Empire: Start your morning with the top news and analysis to inform your day in crypto.
  • Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
  • 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
  • Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
  • The Drop: For crypto collectors and traders, covering apps, games, memes and more.
  • Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.
Tags

Upcoming Events

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Old Billingsgate

Mon - Wed, October 13 - 15, 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

Research Report Templates.jpg

Research

Bluefin possibly stands at an inflection point. The token is near an all-time low yet the protocol’s spot volume market share and derivatives exchange usage have been increasing month over month since its November launch. Given its current market position and the upcoming upgrades (for both Bluefin and SUI), there may be upside potential before the increased supply growth in December. However, strong opposition from existing competitors (like Cetus and Suilend), as well as new entrants (like Aftermath), pose key challenges to Bluefin’s medium-term success.

article-image

Top Committee Democrat Sen. Elizabeth Warren in her opening statement accused Atkins of “helping billionaire CEOs like Sam Bankman-Fried”

article-image

Introducing garbled circuits for enhanced privacy and regulatory compliance

article-image

Ross Ulbricht was a freedom maximalist building freedom tech, powered by Bitcoin

article-image

Solana validators can reap benefits including payments, votes and community clout

article-image

Sponsored

WalletConnect is cementing itself as the essential connectivity layer, ensuring wallets remain the entry point for billions of users

article-image

According to a legal filing, Galaxy Digital helped boost the price of LUNA while quietly selling its tokens