Treasury Secretary Janet Yellen highlighted the recent scenario around Terra’s LUNA/USD algorithmic stablecoin Terra USD UST/USD as an example of how digital assets pose a risk to the financial system.
What Happened: In a hearing on Tuesday before Congress, Yellen said: “A stablecoin known as TerraUSD experienced a run and declined in value. I think that this simply illustrates that this is a rapidly growing product and there are rapidly growing risks.”
UST lost its peg to the U.S. dollar for the second time in two days as Terra’s native token LUNA crashed by 60% over just two days. At press time, LUNA was trading at $11.65, down 89% from its all-time high last month, as per data from Benzinga Pro.
Market participants have attributed Tuesday’s events as one of the reasons why Bitcoin BTC/USD saw such a deep selloff leading to cascading effects for popular large-cap altcoins like Ethereum ETH/USD, Solana SOL/USD and Dogecoin DOGE/USD.
“New products and technology may present opportunities to promote innovation and increase efficiencies,” said Yellen.
“However, digital assets may present risks to the financial system and increased and coordinated regulatory attention is necessary.”
She went on to state that the outstanding stock of stablecoins is “growing at a very rapid rate” in light of which there is an inherent need for a consist federal framework.
In her view, there is an urgent need for Congress to pass stablecoin legislation before the end of the year.