Treasury Secretary Janet Yellen pointed to a recent run on the stablecoin TerraUSD as evidence of the potential threat to financial stability posed by unregulated cryptocurrency markets during a Senate Banking Committee hearing Tuesday.
Stablecoins are a type of cryptocurrency that aim to maintain a stable value relative to government-issued currencies like the U.S. dollar. TerraUSD — also known as UST — is an algorithmic stablecoin, which strives to maintain a one-to-one peg against the U.S. dollar through an algorithm that controls the supply of an associated cryptocurrency called LUNA LUNAUSD, -82.11%.
“A stablecoin known as TerraUSD experienced a run and declined in value,” Yellen said. “I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.” In November, President Joe Biden’s Working Group on Financial Markets issued a report calling on Congress to require that stablecoins to be issued by federally regulated banks, to instill investor confidence and avoid the sort of asset-run that TerraUSD experienced yesterday.
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