According to CNBC, Tether (USDT) co-founder Reeve Collins believes the collapse of TerraUSD (UST) — which has now been renamed TerraClassicUSD (USTC) — might be the spark for the demise of other algorithmic stablecoins.
Collins made the remark to the news source while speaking at the World Economic Forum in Davos, Switzerland. He went on to say that the fall “wasn’t a suprise.”
Collins stated, “
It’s an algorithmic-backed, stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar.
Many people have cashed out UST in recent months after realizing the stablecoin was not viable, according to Collins. As a result, the stablecoin fell in value, dragging the entire crypto market down with it.
Collins feels algorithmic stablecoins haven’t seen the worst of it yet, despite the present negative crypto market. Other algorithmic stablecoins, he believes, will soon follow UST, bringing the class to an end.
Although Collins feels the era of algorithmic stablecoins is coming to an end, Jeremy Allaire, CEO of USD Coin (USDC) issuer Circle, argues that innovators aren’t finished yet.
He went on to say,
I’ve compared algorithmic stable coins to the Fountain of Youth or the Holy Grail. Others have referred to it as financial alchemy.
To that end, he believes that financial alchemists will continue their quest for magic potion to the Holy Grail of a steady value.
Because of the concerns, Allaire believes regulators will prohibit algorithmic stablecoins from interacting with the market and financial system.
Stablecoin regulation is being doubled down on
Following the UST fiasco, financial watchdogs and lawmakers have been increasingly demanding for immediate stablecoin regulation. The British government, for example, has proposed legal changes to better control stablecoin issuers.
The government stated in a May 31 consultation paper that it is critical to guarantee that existing legal frameworks can effectively help manage the risks posed by the probable systemic failure of digital settlement asset providers.
Aside from the United Kingdom, the United States, according to Hester Peirce of the Securities Exchange Commission, may speed up the pace in terms of stablecoin adoption. The UST debacle, according to Peirce, will prompt regulators to quickly rein in stablecoins.
Although regulators have yet to specify how they intend to govern stablecoins, laws mandating stablecoin issuers to use tangible assets as reserves for their tokens are expected to be implemented.