Stablecoins are cryptocurrencies that are usually pegged to real-world assets, and should have been pegged to the US dollar. While stablecoins like Tether (USDT) coins are backed by real-world assets such as fiat currencies and government bonds to maintain their dollar pegs, the USD is governed by an algorithm.
The collapse of the TeraUSD stablecoin has shocked the crypto market and it is unlikely to survive further. The co-founder and CEO of digital currency Tether recently told CNBC. Losses in UST’s dollar peg have completely crashed its sister token, Luna, to $0.
With governments around the world now focusing on regulating stablecoins, Pat Tomei, ranking member of the US Senate Banking Committee, released a draft set of rules on stablecoins earlier this year.
In addition, the UK government had also planned to bring stablecoins under its regulatory preview. The British government subsequently issued a proposal to update existing rules to manage the failure of stablecoins.
Bertrand Pérez, CEO of the Web3 Foundation and former director of the Facebook-backed Diem stablecoin project, says that once we have a clear regulatory framework on stablecoins, the basic rules of regulation will be that stablecoins can be traded as a set of securities. Must be supported with. Strong assets, says Perez, should, and should, be regularly audited to keep track of them.
Reeve Collins, co-founder of digital token company BLOCKv, told CNBC last week at the World Economic Forum in Davos, Switzerland:
“It is unfortunate that money was lost, however, so it is no surprise. It is an algorithmically-backed, stablecoin. So it is just a bunch of smart people trying to figure out what to do in dollars. How to put something?
He went on to add that: “And a lot of people pulled out their money over the past few months because they realized it wasn’t sustainable. So that crash kind of had a cascade effect. And that would probably be the end of the most stablecoins ever.”
Jeremy Allaire, CEO of Circle, one of the companies behind the issuance of the USDC stablecoin, says that people will continue to work on the stablecoin. He further told CNBC that
“I have compared algorithmic stablecoins to the Fountain of Youth or the Holy Grail. Others refer to it as financial alchemy. And so there will be financial alchemists who work on magic potions to create these things. And to find a stable price, the Holy Grail of algorithmic digital currency. So I sincerely hope that the pursuit will continue.”
Adding to this, Allaire said that: “Now, what happens with the regulation surrounding it is a different question. Are there clear lines drawn about what can interact with the market, you know. What could interact with the financial system, given the inherent risks.”