• Terra's stablecoin UST slipped below its peg at $1, despite the Luna Foundation Guard Council's efforts to stabilize the peg through $1.5 billion in BTC and UST.
  • Janet Yellen, the US Treasury Secretary, commented on the collapse of Terra's algorithmic stablecoin.
  • The US Treasury Secretary has pointed out the need for stablecoin regulation by the end of 2022 to avoid further slip-ups like UST Terra.

The US Treasury Secretary has pointed out the risks of UST and revealed the importance of stablecoin legislation. Before the collapse of Terra's algorithmic stablecoin, the founder of Terra, Do Kwon, had received a subpoena from the US Securities and Exchange Commission. 

Yellen calls for regulation after the UST collapse

Janet Yellen, the Secretary of the US Department of the Treasury, highlighted the risks of UST in a hearing on May 10, emphasizing the importance of stablecoin regulation. In response to a question about when stablecoin regulation would arrive, Yellen said,

I certainly think there are many risks associated with cryptocurrencies. The Treasury will issue a comprehensive report on cryptocurrencies and stablecoins shortly.

The President's Working Group on Financial Markets has requested this report on crypto assets from the US Department of Treasury. Yellen believes it would be appropriate for Congress to work on the stablecoin legislation and get it done by the end of 2022. 

Terra's UST recently lost its pegs and has failed to recover despite active efforts of the Luna Foundation Guard (LFG) council that deployed $1.5 billion in Bitcoin and UST Terra to stabilize the algorithmic stablecoin's peg. 

Yellen commented on UST's collapse and said,

A stablecoin known as TerraUSD experienced a run and declined in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks.

Do Kwon described UST's collapse as a coordinated attack on Terra's tokens. Kwon told his 416,000 followers that he is close to announcing a recovery plan for UST. 

 

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