TerraUSD crash brings regulatory attention back to crypto markets

 The impact of the Terra USD (UST) crash has spread outside the crypto space, and regulation has drawn attention back to the crypto market.

On May 8, the US dollar algorithm stable currency UST running on the Terra blockchain experienced a significant de-anchoring. UST, which was originally equivalent to 1 US dollar, fell to a minimum of US$ 0.04 within 5 days, and the de-anchoring rate was as high as 97.7%, which was related to the issuance of UST. The "sister coin" LUNA of 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 crypto regulation.” This prediction of Jeremy Allaire, CEO of the crypto firm 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 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 Bank of France revealed that the regulatory issue of cryptocurrencies will be discussed at the Group of Seven (G7) meeting held in Germany in the near future.

South Korean regulators urgently inspect exchanges

A week after the collapse of TerraUSD (UST) and LUNA, South Korea’s financial regulator launched an “emergency inspection” on the country’s cryptocurrency exchange operators to strengthen investor protections, Yonhap News Agency reported on May 17.

UST and LUNA run on the Terra blockchain, which circulates in the global crypto asset market. Terraform Labs, the company behind the blockchain network, is registered in Singapore, but because its founder and CEO Do Kwon is Korean, Terra was banned. It bears a deep Korean stamp. It is speculated that there are more than 200,000 Korean investors in TerraUSD and LUNA.

Yonhap News Agency reported that South Korea’s Financial Services Commission (FSC) and Financial Supervisory Service (FSS) asked local cryptocurrency exchange operators to share transaction information with UST and LUNA, including transaction value, closing price, and transaction volume. Yonhap News Agency quoted sources as saying that the two regulators asked exchanges to provide countermeasures against 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 of the crypto 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 overseas, there is a need to strengthen relevant cooperation and discussions with foreign authorities to effectively regulate the market.

Questions about Terraform Labs have also begun to appear in South Korean politics.

On May 17, local media reported that after the collapse of the UST, Yun Chang-Hyun, a representative of South Korea's ruling National Power Party, called for a parliamentary hearing on the TerraUSD (UST) risk, saying, "We should include Terra, which has recently become an issue. CEO Do Kwon and executives of the exchange were brought to the National Assembly, which is South Korea's legislature, 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 Group of Seven (G7) meeting in Germany this week The regulation of cryptocurrencies is likely to be discussed at the finance ministers meeting.

G7 finance ministers and central bank governors will meet in Germany on 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, Villeroy said.

There is speculation that the G7’s focus on the crypto market may be related to the negative impact of the UST collapse, as Villeroy bluntly stated at the emerging markets conference in Paris, “The disorderly development of cryptocurrencies (including the misnamed stablecoins) Leading to the risks posed by 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 overseen in a consistent and appropriate manner across jurisdictions, they could disrupt international financial 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. 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 crypto industry has been very concerned about the legal applicability of the US regulators to the regulation of crypto 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 crypto 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, the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, stated that he will continue to act as a “police” for 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 has and financial regulators have taken the case to protect banks and money market funds from runs, "In 1933 Congress effectively barred entities from taking demand deposits unless they were chartered or regulated like banks, and the SEC has always Money market funds enjoy a high degree of regulatory power.”

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 a dollar-pegged token, 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 SEC’s enforcement scope.

Compared with the US authorities, the UK's regulation of stablecoins has been targeted. 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 were not stable.

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. further regulatory action.” Currently, the UK only allows a limited number of crypto asset operators to operate locally.