Over the last few weeks, stablecoins Terra USD and its sister currency, Luna, have dropped by over 80 percent, leaving investors worried and panicked, especially after crypto surged during the pandemic.
Terra USD is an algorithmically designed stablecoin, which means that it coordinates with the US dollar. The USD is experiencing relatively high inflationary pressure that has partially caused Terra’s crash.
This stablecoin crash has only heightened the conversation surrounding cryptocurrency regulations. Treasury Secretary Janet Yellen spoke at a Senate Banking Committee and stated, “We see risks which could threaten financial stability — risks associated with a payment system and its integrity and risks associated with increased concentration if stable coins are issued by firms that already have substantial market power.”