The TERRA drama is causing a stir in several states! HM Treasury says that the collapse of TERRA reinforces the authorities’ desire to regulate stablecoins. If the issue of stablecoin regulation is not new, it seems to gain in importance since Terra collapsed last week.
As a reminder, the Terra ecosystem is based on two tokens which are the LUNA, a volatile token, and the UST, which is the associated algorithmic stablecoin. Without going back over what the UST stablecoin is, let’s just remember that it is always equal to one dollar. In the past week, the price of the UST stablecoin has fallen below one dollar, hovering around $0.12 at the time of writing. At the same time, the LUNA token experienced a historic decline. This event has caused a real panic in the ecosystem, which seems to justify that national regulators want to address the issue of stablecoin regulation with greater speed.
It is against this backdrop that the announcement from the UK Treasury Department comes. According to a spokesperson for the UK Treasury, the regulation of stablecoins will “create the conditions for issuers and service providers to operate and grow in the UK, while ensuring financial stability and high regulatory standards”.
He also believes that the regulation of stablecoins, when used as a means of payment, will form part of the Financial Services and Markets Bill announced in the speech by Queen Elizabeth II. Indeed, the Queen’s stand-in for the speech (Prince Charles) unveiled the government’s crypto plans. Among the bills announced are the Financial Services and Markets Bill and the Economic Crime and Corporate Transparency Bill. According to the UK Treasury spokesperson, the stablecoin legislation could therefore be part of the former.
The UK Chancellor of the Exchequer welcomes the progress of the regulation. He believes that :
“This plan will ensure that the UK financial services sector remains at the forefront of technology and innovation”Rishi Sunak, Chancelier britannique
Some stablecoins will not be included in the UK legislation
As mentioned, the UK Treasury spokesperson has confirmed that stablecoins will be included in the Financial Services and Markets Bills in the near future (and probably soon given the current environment). However, the bill will not cover all existing stablecoins.
Indeed, it will be necessary to distinguish a priori whether the stablecoins in question are used for payment purposes, in which case they should logically be subject to the aforementioned act. On the other hand, if the stablecoins are not used for payment purposes, the legal treatment will be quite different. This is also why the Treasury Department does not plan to include algorithmic stablecoins in the legislation. Furthermore, algorithmic stablecoins like the late UST do not guarantee stability.
The UK Treasury Department spokesperson adds:
“The government has been clear that some stablecoins are not suitable for payment purposes, as they share characteristics with unsecured crypto-currencies. We will continue to monitor the wider cryptoasset market and are prepared to take further regulatory action if necessary”Spokesperson for the UK Treasury Department
The collapse of TERRA has also provoked reactions on the other side of the continent. Indeed, the US authorities have, as a result of this event, called for rapid and “urgent” regulation of stablecoins. However, Jenet Yellen, Secretary of the Treasury, moderated the statement by saying that stablecoins are “not a real threat to the financial stability of the United States”.
More reactions are expected.