The Congressional Research Service (CRS), a legislative agency that props up U . s . States Congress, has printed a document which contains a rundown on algorithmic stablecoins and highlights important aspects to check out within the TerraUSD (UST) crash.
In the report, the CRS described the UST crash like a “run-like” scenario and posited there are policy issues attached to the chance of such occasions. Based on the CRS, a “run” situation starts when holders are doubtful from the reserves that back the dollar peg from the asset.
After this, a substantial quantity of investors withdraw investments simultaneously, producing a negative domino effect that threatens the financial stability from the crypto ecosystem and also the traditional finance system.
The study agency further described running-like scenarios in traditional finance are guarded by regulation along with other measures for example bank deposit insurance and liquidity facilities. These lessen the incentives of individuals who’re thinking about taking out their assets.
However, the CRS notes the stablecoin industry isn’t as “adequately regulated” which there might be gaps within the regulatory frameworks of stablecoins, because the agency formerly discussed in another report. Furthermore, the CRS highlighted existing policy proposals that could restrict assets that may back stablecoins and establish reporting needs.
Meanwhile, U . s . States Treasury Secretary Jesse Yellen lately noted the de-pegging of stablecoins like UST and Tether (USDT) isn’t a threat towards the country’s financial stability. Regardless of this, Secretary Yellen also noted the digital market is “growing very rapidly” and offer similar risks to banks.
Following a Terra (LUNA) and UST crash, Terra co-founder Do Kwon announced the Terraform Labs team will produce a new proposal to fork the Terra Luna blockchain. The brand new blockchain won’t be linked to UST, as the old Terra network will still exist together with UST and become renamed Terra Classic (LUNC).