Jakarta, CNBC Indonesia – United States (US) Treasury Secretary Janet Yellen warned of the impact of the case of falling stock prices for Terra LUNA and TerraUSD. He said the incident proved the potential threat to financial stability posed by unregulated crypto markets.
“The stablecoin known as TerraUSD is depreciating in value. I think that just illustrates this is a rapidly growing product and there are risks to financial stability and we need a framework that fits,” Yellen said at a Senate Banking Committee hearing. (12/5/2022).
TerraUSD is a stablecoin whose goal is to maintain a stable value relative to government-issued currencies such as the US dollar. UST or TerraUSD is an algorithmic stablecoin, seeking to maintain a 1:1 peg on the US dollar with an algorithm that controls the supply of the corresponding currency called Terra LUNA.
Over the weekend, Terra plunged below $1 to a low of 69 cents late Monday and advanced Tuesday afternoon by around 90 cents.
One of the reasons the volatility in TerraUSD may be contributing to Bitcoin’s weakness is because the foundation that manages it announced it would be lending Bitcoin from reserves to traders. That way they can buy TerraUSD and increase the price.
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Photo: Terra LUNA crypto asset (Ist)- – |
Joe Biden’s own government has long wanted to regulate stablecoins. In late November, a report by its working group on financial markets asked Congress to require stablecoins to be issued by federally regulated banks.
They hope that this way can instill investor confidence and can avoid the types of assets that TerraUSD was running yesterday.
Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, said operating stablecoins are like SEC-regulated money market funds. As well as adding investors are also entitled to the same protection as done with money.
“This is an $18 billion fortune that we see evaporate before our eyes and people lose money,” he explained.
A stablecoin is a cryptocurrency tied to the official currency of a central bank. Usually the number and value of stablecoins will be the same as the official currency issued on the Blockchain. The issuing company also keeps the official money it holds. Official money has low volatility as the central bank tries to maintain its value to prop up the economy.
While TerraUSD uses a different concept. This cryptocurrency does associate its value with the US dollar but uses the Terra LUNA crypto asset to maintain its stability. They also use Bitcoin as a backup, where this popular cryptocurrency has high price volatility.
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Terra LUNA Coin Drops from IDR 1 Million to IDR 15 Thousand, Why?
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