Michael Hsu, acting head of the Office of the Comptroller of the Currency (OCC), said that the collapse of the Terra project and its consequences for the market revealed the weaknesses of digital assets.
During the interview, Michael Hsu declaredthat the collapse of Terra helped expose three major vulnerabilities in the crypto industry. Using the default of TerraUSD (UST) as an example, Hsu noted that stablecoins are actually not as stable as their issuers claim.
According to him, TerraUSD has long been considered pegged to the value of the US dollar and backed by reserves. In fact, it was backed by a basket of volatile assets, which ultimately led to its failure.
Hsu stated that much of the growth in the crypto industry has been driven by hype. According to him, Terra was able to grow so quickly because of the hype around the project and an attractive but ultimately unsustainable reward system.
“You saw how the sale of UST and LUNA gradually spilled over to the entire cryptocurrency market. Half a trillion dollars of Terra’s value was lost in a relatively short period of time, and we even saw some pressure on Tether, which, not being an algorithmic stablecoin, still lost its peg to the US dollar for a while,” Hsu emphasized.
He noted that thanks to Terra, it was possible to identify some factors of the fragility of the crypto market. According to Hsu, this information should convince the crypto community to comply with all security measures while moving the industry forward.
The acting head of the OCC also warned investors against experimenting with investing in digital assets until they fully understand what they are and what the risks of investing in cryptocurrencies are.
The collapse of the stablecoin TerraUSD “stirred up a hornet’s nest” of regulators and brought serious trouble to the crypto industry. Last week, the New York State Financial Services Authority updated the requirements for the operation of licensed crypto-currency companies issuing stablecoins.
Source: Bits
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