US Congressional Analysts: Stablecoin Market Needs Tough Regulation

The US Congressional Research Service (CRS) believes that the collapse of TerraUSD (UST) has shed light on gaps in stablecoin regulation.

CRS Analysts published a document that lists the provisions of the legislation on the regulation of cryptocurrencies, which allowed the “investor stampede from the stablecoin market”. The authors of the document explained the fundamental principles of the algorithmic stablecoin and pointed out the factors that require attention in connection with the default of TerraUSD (UST).

According to CRS analysts, the withdrawal of investors from the UST market shows that as soon as the holders of the asset begin to doubt the reserves that support the dollar peg of the stablecoin, there is a massive withdrawal of capital. The ill-considered actions of investors lead to a domino effect that threatens the financial stability of the entire crypto market and the traditional financial system, analysts insist.

The authors of the paper point out that traditional financial systems are protected from such scenarios by regulation, bank deposit insurance and the liquidity mechanism. According to CRS, this reduces incentives for investors considering the possibility of withdrawing their assets from a falling market.

Analysts state that the stablecoin industry is not as “adequately regulated” and that there are gaps in the regulatory framework. The CRS emphasizes that existing proposals to limit crypto assets and reporting requirements can support stability in the stablecoin market.

Shortly after the fall of UST, US Treasury Secretary Janet Yellen said that the cryptocurrency market had not yet grown to such a scale as to pose a threat to the financial system. However, she called for faster regulation of stablecoins.