(Kitco News) As the collapse of the stablecoin led to the crash of the cryptocurrency market, with bitcoin trading below $30,000 and Ethereum below $2,000, US Treasury Secretary Janet Yellen addressed the significance of the crash.
“I wouldn’t characterize it on this scale as a real threat to financial stability, but [the use of stablecoins is] And it testified before the House Financial Services Committee on Thursday that it’s growing very fast, and it presents the same kind of risk we’ve known for centuries in terms of bank management operations. On a one-to-one basis.
Yellen was referring to the collapse of TerraUSD (UST), the algorithmic stablecoin that lost its correlation with the dollar over the weekend and continued to crash throughout the week. At the time of writing, ground tanks are at $0.37, down 40% from today.
The drop in the popular stablecoin Tether to below $1 for the first time ever early Thursday exacerbated the situation. Since then, however, Tether has managed to recover following reassurances from Tether’s chief technology officer, Paolo Ardoino.
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During her testimony, Yellen also called for more regulation, adding that it would help the stablecoin community.
“The Financial Stability Oversight Board is currently analyzing potential financial stability risks from digital assets in general. I cannot say it has reached the scale at the moment where it is a financial stability concern,” she said. “What I see is that the use of digital assets is rising very rapidly. They represent the same kinds of operational risks and other risks, and payment systems risks. And we need a comprehensive framework so that there are no regulatory gaps.”
One of the complaints Yellen cited that came from her discussions with the industry was regulatory uncertainty. “If Congress were to put in place a framework, it would be easier for issuers of these assets to know the regulatory environment,” she said.
The regulatory framework Yellen proposes to regulate stablecoins is a bank-type framework.
“It is a flexible framework. It includes appropriate capital and liquidity requirements, which I think are important and is a framework within which payment system risks can be addressed,” she explained. “Establishing an appropriate framework for the risks posed by stablecoins really provides the kind of certainty in the regulatory environment that stablecoin issuers need to thrive and innovate.”
Moreover, Yellen added that a central bank digital currency (CBDC) could solve many of the risks and problems associated with stablecoins. However, she cited privacy concerns as one of the main obstacles.
“This is the reason for the desire to have the central bank digital currency. But there were also concerns that it could have a very large impact on the financial intermediation structure, depending on how it was designed,” she said.
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