Regulators are getting concerned as UST's de-pegging 'LUNA-cy' becomes public.
Following the Terra LUNA crisis, which resulted in the cryptocurrency market losing $830 billion in market value, authorities are questioning the reliability of stablecoins. After the LUNA incident, officials throughout the world are pressing for more regulation in the crypto industry, despite widespread cynicism over the absence of regulation.
Authorities warn that there could be a slew of future events with far-reaching financial consequences for other industries. They went on to say that such incidents are likely due to a lack of effective regulatory participation.
Do Kwon's LUNA-cy
Terra's stablecoin, UST, fell below $1 on May 8, breaking its peg. Large whale outflows from Anchor, a DeFi protocol built on the Terra Blockchain that provided substantial returns to investors who deposit UST, were blamed for the de-pegging.
FUD drove some traders to hastily liquidate their positions in the UST and the blockchain's native token, LUNA, following this debugging. This sent the prices of both cryptocurrencies farther lower, to new ATLs.
De-Tethering
Tether, the world's largest stablecoin, temporarily lost its peg and dropped below $1 as the FUD around UST's de-pegging intensified. Despite the fact that the USDT has recovered its peg, officials are concerned that this could strike again.
The likelihood of greater regulatory measures in the cryptocurrency industry was discussed by authorities in the United States, the United Kingdom, and South Korea last week.
From the United States to South Korea
U.S. Treasury Secretary Janet Yellen stated before the House Financial Services Committee of the United States Congress on May 12 that assets believed to be stablecoins, such as UST and Tether, do not constitute a serious concern to economic stability. However, she added that they are fast expanding and that regulation is likely. "I wouldn't characterize it at this scale as a significant threat to financial stability," she added, "but they're developing very quickly, and they bring the same kinds of hazards that we've seen in connection with bank runs for decades."
She also commented, in support of stablecoin legislation:
"We urgently require a regulatory regime to mitigate the hazards."
While delivering the Queen's Speech on May 10, Prince Charles stated that the United Kingdom supports the introduction of legislation to "further strengthen authorities to combat illicit finance, decrease economic fraud, and assist businesses to row." Initiatives to aid the security services and assist them in protecting the United Kingdom will be implemented."
The British Treasury Department reaffirmed the government's position to govern stablecoins in the territory following the demise of the TerraUSD and Terra.
"Regulation to govern stablecoins, if they are used as a form of payment, will be included in the Financial Services and Markets Bill, which was outlined in the Queen's Speech," a Treasury spokesperson said.
Even authorities from the South Korean Financial Services Commission and the Financial Supervisory Service, which are in charge of digital assets, told local reporters on May 15 that the Commission has begun an emergency review on trends in the aftermath of the LUNA event. It was also stated that preparations are in the works to approve the Basic Act on Digital Assets in 2023, which would contain consumer rights, and then put it into effect in 2024 to avoid future market disruptions.
