The Terra collapse has put stablecoins between a rock and a hard place, as regulators keep citing it when having regulatory conversations about the space. So what's next?
Talking about the impact of Terra contagion on the stablecoin regulation, Mriganka Pattnaik, CEO of risk monitoring service provider Merkle Science, told Cointelegraph that regulators need to take a broader approach than going for a temporary ban. She believes lumping all algorithmic stablecoins together and putting a blanket ban on them will hamper innovation, stating:
Patnaik added that it is counterproductive to hold onto the notion that decentralization and regulatory controls can never be in alignment. The most proactive thing stablecoin issuers can do is “come together and propose technical solutions to regulatory problems surrounding algorithmic stablecoins.”
He added that the Terra debacle set a precedent for fellow decentralized finance and crypto investors to be more transparent and “regulations will be put in place to ensure consumers and investors aren’t affected by poor practices.”The Terra stablecoin project somewhat recalls the fate of Facebook’s, now Meta, stablecoin project Libra, which was later dubbed Diem.
Just as Libra forced regulators to wake to the reality of private entities issuing money in the digital era, Terra has made lawmakers take a closer look at who can issue a stablecoin, opening the gates for banks and other financial institutions to get involved in the nascent crypto market. Jason P. Allegrante, chief legal and compliance officer at Fireblocks, explained that quite similar to what Diem did for regulators, Terra’s failure has accelerated Congress’s drafting of a promising bipartisan bill. He told Cointelegraph:
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