Tether (USDT), a stablecoin designed to be tied to the US dollar, may not be a safe place for crypto investors to store their capital, according to the head of a key US banking regulatory agency.
Terra (LUNA), also known as Terra Classic, dropped to nearly zero earlier this month after Terra’s UST stablecoin lost its peg to the dollar, wiping out roughly $60 billion(R934B) in wealth.
At the same time, USDT momentarily lost its peg due to significant sell pressure before regaining.
According to Michael Hsu, the head of the Office of the Comptroller of the Currency (OCC), the collapse of Terra (LUNA) and its algorithmic stablecoin UST showed “deep vulnerabilities” in the crypto ecosystem in an interview with CNBC.
“What’s truly intriguing is that TerraUSD was an algorithmic stablecoin… Tether isn’t one of them. It is not an algorithmic stablecoin. It has assets backing it up. Nonetheless, there was some spread from one to the other. Why?
For those of us who work as bank regulators or historians of money-like devices, this is a very familiar narrative. Prudent regulation is the method to cope with it. This is why I believe some of the options, particularly the recommendations for a more bank-like [or] regulatory approach, are a suitable beginning point for that conversation.”
According to Hsu, the fact that Tether was briefly affected during the same timeframe as UST’s collapse should be taken seriously by investors.
“Clearly, you witnessed spread, not just from Terra to the broader crypto community, but to Tether and other stablecoins, and I believe that wasn’t envisaged.” And I believe that is something that people must pay close attention to.”
Senator Cory Booker (D-NJ) believes that while regulation is necessary to make the market more transparent, it should not push innovative companies in the sector to leave the country.
“What we don’t want to do is suffocate a new industry and innovation, causing us to miss out on chances.” Or, as I’m seeing right now, a lot of these opportunities simply shift offshore, and we miss out on the economic growth and job creation that comes with it. So, if we get the regulation right, this is a really crucial space that can actually help the industry while also safeguarding consumers.”