Janet Yellen Calls for Stablecoin Regulation Amid UST Drama

Janet Yellen, the secretary of the United States Treasury, said on Tuesday that there is a need for stablecoin legislation, while noting that TerraUSD (UST) is risky.

Secretary Yellen Speaks On Stablecoin Legislation

Secretary Yellen made the statement at a Tuesday hearing dubbed the Financial Stability Oversight Council Annual Report to Congress. The work done by the FSOC, a unit under the U.S. Treasury aimed at protecting the nation’s economy, was discussed in the hearing.

Pat Toomey, a member of the U.S. Senate, asked a question regarding stablecoin. Yellen responded to the question, noting that it is crucial for Congress to pass legislation on such digital assets by the end of the year.

Yellen also spoke on the effect the current crypto market downturn has on the price of Terraform’s algorithmic stablecoin, UST, which dropped by 34% from its current price at $0.91. She said that the stablecoin had risks.

“A stablecoin known as TerraUSD experienced a run and declined in value. I think that simply illustrates that this is a rapidly growing product and there are rapidly growing risks,” she said.

Do Kwon, the co-founder of Terraform Labs, was once allegedly summoned to court by the U.S. Securities Exchange Commission (SEC) after the Luna Foundation Guard (LFG) emptied its $2.2 billion Bitcoin reserve to save the UST. 

Stablecoin Legislation Underway

According to a February report, U.S. Congressman Josh Gottheimer revealed an initial draft containing regulatory instructions governing stablecoin legislation dubbed the Stablecoin Innovation and Protection Act.

The regulation is aimed at ensuring only stablecoins fully backed by the U.S. dollar are approved for investors to interact with. These stablecoins are to be issued by either a bank endorsed by the government or other qualified financial institutions.

The bill states that the stablecoin reserves should be U.S. dollars, U.S. debt, or any other asset approved by the Office of the Comptroller of the Currency (OCC). Up until now, the bill has yet to be passed.

According to a November report, the U.S. Senate Banking Committee sent a request demanding that various stablecoin issuers and exchange firms explain the entire process behind the functionality of stablecoins and also ways investors can be protected.