Terra’s UST crash will make life more difficult for crypto as regulation imminent.

conversation of The crypto world has highlighted stability this week around stablecoins.

TerraUSD (UST), one of the largest stablecoins, fell from a moratorium after falling from its $1 value on Monday, and has since dropped 70% to $0.2998. Founder Kwon Do-kyung has announced plans to revive stablecoins, but community members are still concerned.

Meanwhile, US Treasury Secretary Janet Yellen called for tighter regulation of stablecoins in her annual testimony before the Senate Banking Committee on Tuesday as the UST struggles to maintain its peg.

“This UST situation could provide an excuse for governments like the US to crack down on stablecoins even more tightly,” George Harrap, co-founder of Solana-focused portfolio dashboard Step Finance, told TechCrunch. “We’ve seen this before. However, stablecoins are receiving a lot of regulatory attention and this will only increase.”

The key questions in the crypto market hit by bearish sentiment are: What does this mean for the future of stablecoins?

Some industry participants are not entirely concerned. “I would like to say that this UST situation is a fundamental proposition and will not affect stablecoins,” Jon Wood, contributor to DeFi (Decentralized Finance) yield protocol Harvest Finance, told TechCrunch. “Stablecoins are an integral part of the crypto ecosystem, and it is impossible to do DeFi without stablecoins. The big ones are old enough to be widely used and reliable.”

“The recent UST collapse has been a huge one, but certainly not the first or the only one.” Evan Kuo

A stablecoin is, by its literal definition, stable against an external currency, such as the US dollar, at a 1:1 ratio. However, not all stablecoins are built on the same foundation and may be backed by different reserves. For example, Tether (USDT) and USD Coin (USDC), the two largest stablecoins by market cap, are backed by fiat equivalent reserves issued by centralized companies.

Meanwhile, UST is an algorithm-based stablecoin primarily supported by its sister cryptocurrency, LUNA, but also supports Bitcoin. Founder Do Kwon previously told TechCrunch that he plans to back it up with other cryptocurrencies over time. It’s unclear whether the roadmap to recovering from UST’s downfall is still in effect.

Spokesperson Kwon declined to comment on Wednesday, and Terraform Labs said “it is currently paused because the media opps are currently in a bit of a downturn.”

“Of course, I had dental problems. Tether has been plagued by doubts about its collateral ratio, but is still widely used,” said Wood. “USDC has been criticized for being centralized. Maker’s DAI over-collateralized Algostable has been considered too ‘niche’, but has been working on pegs for years. All of this is going nowhere.”

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