Terra turmoil adds for the concerns of Minister Yellen in relation to stable coins
Terra turmoil adds for the concerns of Minister Yellen in relation to stable coins
- UST shows how risky stable coins can be, said Yellen
- The Ministry of Finance will "shortly publish a comprehensive report" about cryptocurrencies and stable coins, said Yellen
The continued collapse of Terrausd on Wednesday focused on the "rapidly growing risks" US finance minister Janet Yellen said during her annual hearing on Tuesday.
When Yellen appeared before the legislator to discuss the state of financial stability, VAT recovered from his slump on Monday evening, only to experience a greater downturn later a day. Things got umpteenth overnight, and VAT fell to up to 26 cents.
StableCoin, about which Yellen and other legislators had repeatedly expressed concerns in the past few months, has solved itself from the US dollar several times this week.
"Terrausd experienced a run and lost value," said Yellen.
"I think this simply shows that this is a rapidly growing product and there are rapid risks."
The de-pegging of VAT started for the first time on Saturday, when large sales from VAT over the VAT 3Pool from Curve Finance, a stock market liquidity pool on Ethereum, and the centralized bony exchange were made. This caused a liquidity -making weight, which in turn led to further drains, said Dusan Kovacic, Chief Investment Officer at Rockaway Blockchain Fund.
A number of factors tightened the liquidity problems for the protocol, said Kovacic. In view of the design of the Terra ecosystem, 1 VAT cannot be exchanged for Luna worth $ 1 if there is not enough liquidity. Arbitrageure bought VAT (below $ 1) and sold it to the Terra protocol for Luna worth $ 1 and immediately sold it on the market by winning. But this mechanism can process due to only about $ 293 million a day Protocol parameter defined by Terra's government. A so -called death spiral began.
"The Terra Debacle shows that there is a large appetite for return and a need for better alternatives with a more robust and sustainable design," said Manuel Rensink, strategy director at Securrency. "We see strong opportunities for newcomers on the market for decentralized value stability."
The sale takes place, while the legislature in the United States is trying to determine regulatory guidelines.
The Ministry of Finance will "shortly" issue a "comprehensive report" about cryptocurrencies and stablecoins, Yellen said on Tuesday, as part of a request from the President for Financial Markets (PWG). She also emphasized that the congress should also work on StableCoin legislation and said that it was "extremely reasonable" to do this by the end of 2022.
Supervisory authorities and legislators must have the differences between experimental algorithmic stable coins such as VAT, oversured stable coins such as Dai and FEI, which are covered by ether, and fiat-covered stable coins such as USDC, the dollar, US state bonds and other assets outside, analyze the crypto ecosystem.
"[with stablecoins,] We see run risks that could threaten financial stability, risks related to a payment system and its integrity as well as risks in connection with increased concentration if there are stable coins from companies that already have considerable market power," said Yellen. "We definitely see considerable risks."
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The contribution "Terra turmoil adds food for the concerns of Minister Yellen about stablecoins" is not a financial advice.