By Hannah Lang
WASHINGTON (Reuters) – The cryptocurrency industry is scrambling to address U.S. lawmakers’ concerns over stablecoins following the collapse of TerraUSD, which wiped billions from the cryptocurrency market.
The Blockchain Association and Chamber of Digital Commerce, which represent some of the most influential crypto companies, say they have answered a flurry of questions from Capitol Hill since TerraUSD, known as “UST”, broke. his ankle last week and crashed 90%.
Stablecoins are cryptocurrencies that attempt to maintain a constant exchange rate with fiat currencies. The $163 billion space is dominated by US dollar-pegged tokens like Tether and USD Coin, holding reserves in traditional dollar assets. Some stablecoins, like UST, however, use a complex algorithmic process to create the peg.
Capitol Hill lawmakers have questioned lobbyists about the structure of the UST, seeking to determine whether its collapse was preventable and whether other stablecoins could suffer the same fate.
Lobbyists are urging lawmakers not to get too tough on the stablecoin range.
“The only thing we warned on the Hill is that we don’t want to accidentally throw the baby out with the bathwater, because we believe stablecoins are a really essential part of the crypto ecosystem going forward,” said Kristin Smith, executive director of the Blockchain Association.
As the cryptocurrency market exploded to $3 trillion in November, scrutiny from policymakers grew.
In response, the crypto industry has increased its presence in Washington, spending $9 million on lobbying in 2021, according to Public Citizen. The Blockchain Association and the Digital Chamber of Commerce spent $900,000 and $426,663, respectively, while crypto giants Coinbase Global Inc and Ripple Labs shelled out $1.5 million and $1.1 million, respectively.
REGULATORY GRAY ZONE
The industry’s growing influence will be tested as it tries to contain the fallout from the UST and the broader crypto market crash, which fell from $1.98 trillion to $1. .3 trillion in just six weeks due to investor fears of rising interest rates.
There are currently a handful of stablecoin bills floating around in Congress. While analysts say the chances of Congress passing one of these this year are slim, with lawmakers focused on the midterm elections, recent swings in the crypto market have caused many lawmakers to take note of it.
“There are a lot of people in Congress who are interested in proposing a regulatory framework to prevent something like this from happening again,” Smith said.
Cryptocurrencies fall into a regulatory gray area.
President Joe Biden’s administration has largely focused on the rules for dollar-backed stablecoins. A report led by the Treasury Department in November recommended that Congress regulate stablecoin issuers as insured depository institutions, but it did not cover algorithmic stablecoins.
Lobbyists had to quickly change course and educate lawmakers about the differences, they say.
“All recent legislative proposals have been backed by executive orders,” said Cody Carbone, director of policy at the Chamber of Digital Commerce. “We thought we did pretty well at educating because we stayed within that framework, and now we’re going to have to expand that.”
Although members of the group do not currently mine algorithmic stablecoins, the chamber is developing talking points to explain how they work, Carbone said.
Regulators have warned that U.S. dollar stablecoins could be susceptible to a run if users lose faith, a fear that seemed to have partially manifested itself last week: after the UST broke its peg, Tether, the most large stablecoin, also briefly broke its peg.
“This is essentially a call to action, as not all currencies are created equal, and what is believed to be stable may in fact not be,” said Jonathan Dharmapalan, CEO of eCurrency, a provider of digital currency technology.
Although the Blockchain Association’s Smith Legislation agreed that legislation was not imminent, the UST issue “certainly reinforces that need,” she said.
(Reporting by Hannah Lang in Washington; Editing by Michelle Price and Matthew Lewis)