Could Stablecoin Regulation Re-Risk the Banking System?

Source: American Banker (Subscriptions may be required)

As far as major market turmoil goes, banks escaped last week’s TerraUSD collapse largely unscathed. 

Terra and its corresponding crypto coin Luna plummeted last week, losing nearly all of their value and throwing the wider crypto market into a selloff. It was an existential moment for crypto proponents and a told-you-so one for its detractors, dredging up fundamental questions about how digital assets are regulated and by whom. 

“A stablecoin known as TerraUSD experienced a run and had declined in value,” Treasury Secretary  Yellen said during testimony before the Senate Banking, Housing and Urban Affairs Committee last Tuesday. “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.”

Yet despite wider fears about financial stability and the recent entrance of large financial players into the crypto space, most of Terra’s collapse stayed confined to the digital assets world.