The impact of the collapse of the Terra algorithm stablecoin UST and the governance token LUNA has been transmitted to the outside of the cryptocurrency field, and regulators in various countries have drawn attention back to the cryptocurrency market.
On May 8, the algorithmic stable currency UST running on the Terra blockchain was significantly decoupled. UST, which was originally equivalent to $1, fell to a minimum of $0.04 in 5 days, with a decoupling rate of as high as 97.7%. “Coin” LUNA once fell to $0.000001 and returned to zero. On April 5 this year, the market price of LUNA reached $119.
“The collapse of TerraUSD and other tokens provides the impetus for lawmakers to accelerate regulation of cryptocurrencies.” This prediction of Jeremy Allaire, CEO of cryptocurrency payments industry Circle, has come true.
On May 17, South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) launched an emergency inspection of local cryptocurrency exchanges.
The U.S. Federal Reserve mentioned stablecoins in its latest financial stability report, after the U.S. Treasury Department revisited stablecoin legislation and the U.S. Securities and Exchange Commission (SEC) reaffirmed investor protection principles after the TerraUSD crash.
In Europe, on May 10, the UK Treasury confirmed that it will regulate stablecoins to the extent that they support innovation, but exclude algorithmic stablecoins. On May 17, the governor of the French central bank revealed that the regulatory issue of cryptocurrencies will be discussed at the Group of Seven (G7) meeting in Germany in the near future.
South Korean regulators urgently inspect exchanges
One week after the collapse of TerraUSD (UST) and LUNA, on May 17, Yonhap News Agency reported that South Korea’s financial regulator launched an “emergency inspection” on the country’s cryptocurrency exchange operators to strengthen investor protection.
UST and LUNA run on the Terra blockchain, which circulates in the global crypto asset market. The company behind the blockchain network, Terraform Labs, is registered in Singapore, but since its founder and CEO Do Kwon is Korean, Terra Was marked with a deep Korean brand. It is speculated that there are more than 200,000 Korean investors in TerraUSD and LUNA.
The Yonhap News Agency reported that South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) required local cryptocurrency exchange operators to share transaction information related to UST and LUNA, including transaction value, closing price, and transaction volume. The report quoted sources as saying that the two regulators asked exchanges to provide countermeasures for the UST crash and analyzed and quoted.
“Last week, the financial authorities asked for data on trading volumes and investors, and assessed the relevant measures of the exchange,” a local exchange source told the media on condition of anonymity. s damage.”
In a meeting with senior officials, the head of the FSS, Jeong Eun-bo, said that the recent collapse in the cryptocurrency market could erode trust in the entire market and cause damage to investors, and regulators should figure out its exact cause and impact. He emphasized that, given the nature of crypto-assets that are mainly traded abroad, relevant cooperation and discussions with foreign authorities need to be strengthened to effectively regulate the market.
Questions about Terraform Labs have also begun to appear in Korean politics.
On May 17, local media reported that South Korea’s ruling National Power Party representative Yun Chang-Hyun called for a congressional hearing on the TerraUSD (UST) risk after the UST collapse, saying , “We should include Terra, which has recently become an issue. CEO Do Kwon and exchange executives were brought to the National Assembly for a hearing on the reasons for the situation and measures to protect investors.”
Yun Chang-Hyun accused some exchanges of taking advantage of the UST crash for profit, “Coinone, Korbit and Gopax stopped trading on May 10, Bithumb stopped trading on May 11. But Upbit didn’t stop trading until May 13, which was the UST crash. The company that finally stopped trading was the largest company with an 80% (Korean market) share, and earned nearly 10 billion won (note: equivalent to $8 million) in commission income in just 3 days.”
Do Kwon, who has yet to respond to inquiries from within South Korea, is busy restoring confidence in Terra. On May 16, he publicly proposed to fork the Terrara blockchain on Twitter. The proposal will be submitted to the community for a governance vote on May 18.
U.S. and U.K. reintroduce stablecoin regulation
On May 17, news from Reuters showed that the governor of the Bank of France, Francois Villeroy de Galhau, said that the regulation of cryptocurrencies may be discussed at the Group of Seven (G7) finance ministers meeting in Germany this week.
G7 finance ministers and central bank governors will meet in Germany from May 18-20. Representatives from the U.S., Canada, Japan, Germany, Italy and the U.K. are likely to speak on an issue related to the regulatory framework for cryptocurrencies, he said.
There is speculation that the G7’s focus on the cryptocurrency market may be related to the negative impact of the UST collapse, as Francois Villeroy de Galhau bluntly stated at the Emerging Markets Conference in Paris, “The disorderly development of cryptocurrencies (including stablecoins) has led to Risks arising from private currencies…. What has happened recently is a wake-up call to the urgent need for global regulation,” he stressed that if cryptocurrencies are not regulated and supervised in a consistent and appropriate manner across jurisdictions, they could disrupt international finance system.
In fact, financial regulators in many countries, including the United States and the United Kingdom, have refocused on stablecoins, with particular emphasis on the principle of investor protection.
Last week, U.S. Treasury Secretary Janet L. Yellen made a direct reference to TerraUSD (UST). The fate of the UST, she said, underscores the need for the legislative branch of Congress to consider a proposal from the Treasury Department last fall to impose bank-like regulatory requirements on issuers of stablecoins.
For a long time, the cryptocurrency industry has been very concerned about the legal applicability of the US regulators to the regulation of encrypted assets, and the collapse of the UST may cause the regulators to step up their actions.
It is reported that a number of stablecoin regulatory proposals are circulating in Congress, and cryptocurrency industry leaders are turning their attention to a more comprehensive bill establishing a crypto regulatory framework. Sources told the media that in order to protect consumer safety, the relevant bill may kill tokens such as UST.
A U.S. Treasury Department source told the media that regulators with enforcement powers will not necessarily wait for lawmakers to act. On May 16, Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), stated that he will continue to act as the “policeman” of the crypto asset market because “the investing public is not well protected.”
Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, also pointed out that existing financial regulation laws can and should be used to address the harm caused by stablecoin risks to investors, because historically, Congress and financial regulators have taken measures to protect banks. and money market funds protected from runs, “In 1933 Congress effectively banned entities from taking demand deposits unless they were chartered or regulated like banks, and the SEC has always had a high degree of regulatory power over money market funds. ”
Todd Phillips suggested that, given the structure and operational mechanics of stablecoins such as UST, if issuers of stablecoins wanted to operate in the U.S. and issue $1-pegged tokens, they would either obtain a bank charter to become a state or federally regulated depository institution , or register as a regulated money market fund. Violating the former is a criminal offense, and the U.S. Department of Justice can take enforcement action against stablecoin issuers; violating the latter falls within the scope of the SEC’s enforcement.
Compared with the US authorities, the UK has put forward targeted measures for the regulation of stablecoins. On May 10, the U.K. Treasury announced plans to move forward with stablecoin regulation, saying it was open to regulation of “stablecoins for payment purposes,” excluding algorithmic stablecoins because they lack stability.
A Treasury spokesman said the government has made it clear that certain stablecoins are not suitable for payment purposes because they share characteristics with unsecured cryptoassets. Take further regulatory action.” Currently, only a very small number of crypto asset operators are allowed to operate locally in the UK.