In the payments market, stablecoins are increasingly considered as a possible alternative to fiat currencies. Regulators and central bankers, on the other hand, view them as a financial threat because the assets that support them are not regulated.
The price of UST dropped to $0.68 on May 9, 2022. The drop was caused by a general market sell-off in all cryptocurrencies. LUNA’s stock plunged by as much as 60% in a matter of days.
New Stablecoin Legislation?
Raoul Pal, a macro expert and the CEO of Real Vision, believes that recent concerns with Terra’s algorithmic stablecoin, UST, may result in new stablecoin legislation.
In a new interview with Bankless, the former Goldman Sachs executive claims that UST’s recent loss of its US dollar (USD) peg is a normal occurrence in most financial markets.
The UST is supposed to maintain its peg to the USD through a minting and burning system that allows holders to redeem 1 UST for $1 worth of LUNA in principle.
When crypto markets sharply corrected on April 9th, UST lost its peg to the USD, and the price of LUNA fell over 77 percent from it’s all-time high, making its market cap smaller than UST.
Pal believes that the UST scenario could be exploited by regulators to justify new rules and restrictions on stablecoins. While many in the sector may be unhappy with stablecoin restrictions, he believes they are an essential stepping stone for the space.
Unregulated stablecoins are not something the government wants. Whether in the corporate or public sector, they demand central bank digital currencies (CBDCs).
So they’ll use this as an excuse, which is probably excellent for Paxos, Circle, and Tether and Terra, but not so much for Tether and Terra.
“The problem is, if we are borrowing somebody else’s currency, then we have to play their game whether we like it or not. It’s their currency. So anybody who thinks, just because we’ve got some algorithm, it’s not the Federal Reserve’s currency, is [crazy].”