WASHINGTON—A decline this week in the price of a major cryptocurrency that was purportedly pegged to the dollar prompted Treasury Secretary
on Tuesday to reiterate calls for Congress to authorize regulation of so-called stablecoins.
TerraUSD, the fourth-largest stablecoin and 10th-largest cryptocurrency by market value according to CoinMarketCap, saw its price fall as low as 69 cents Monday after a series of large withdrawals over the weekend. Like other stablecoins, TerraUSD is intended to be a haven of sorts for cryptocurrency investors, with its price designed to remain fixed at $1.
“I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability,” Ms. Yellen said at a hearing Tuesday before the Senate Banking Committee, noting The Wall Street Journal’s reporting on TerraUSD. “We really need a consistent federal framework.”
A Treasury-led panel of regulators recommended last year that Congress write legislation that would regulate stablecoin issuers similarly to banks. Current laws don’t provide comprehensive standards for the new assets, Ms. Yellen said Tuesday.
the committee’s top Republican, expressed an interest in moving quickly. “Do you think we could shoot for a goal of getting legislation done this year?” he asked in the hearing.
“I think that would be highly appropriate,” Ms. Yellen said, adding that she looks forward to working with Mr. Toomey’s staff.
TerraUSD is structured differently from other major stablecoins, such as Tether, USD Coin and Binance USD. The issuers of those tokens say they are backed by cash or liquid assets that can be sold quickly to pay any investors who want out.
TerraUSD, by contrast, is known as an algorithmic stablecoin that relies on financial engineering, rather than hard assets, to maintain its peg to the dollar. Critics of the model say that makes it riskier because traders might not always respond as expected to its built-in incentives.
A spokesman for TerraUSD’s backer didn’t immediately respond to a request for comment.
the South Korean developer behind TerraUSD, said in a tweet Tuesday he was “close to announcing a recovery plan” for the stablecoin. “Hang tight,” Mr. Kwon said.
Write to Paul Kiernan at [email protected]
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Appeared in the May 11, 2022, print edition as ‘Yellen Presses for Stablecoin Regulation.’