Macro guru and Real Vision CEO Raoul Pal says the recent issues with Terra’s algorithmic stablecoin, UST, may lead to new stablecoin regulation.
In a new interview with Bankless, the former Goldman Sachs executive says UST’s recent loss of its US dollar (USD) peg is part and parcel of most financial markets.
UST is designed to stay pegged to the USD through a minting and burning mechanism that allows holders to in theory, redeem 1 UST for $1 worth of LUNA. On April ninth, UST lost its peg to the USD when crypto markets sharply corrected, and the price of LUNA went down over 77% from its all-time high, making its market cap less than UST.
“There’s only $3 billion to liquidate… Does this change the Anchor Protocol, I don’t know what the knock-on effects are. Maybe there’s more knock-on effects in Avalanche, I don’t know, it’s a very complicated ecosystem, Terra, so I don’t know it inside out. Much like, try and pick apart the Ethereum ecosystem, it’s immensely complicated, nobody really knows where the fault lines lie, who’s got the leverage and who hasn’t.
Markets like this, this is what they do, they find the weakest hands, and drive it into the strongest hands and that’s just always the way of the world…”
Pal says that the situation with UST could be used as justification by regulators to bring in new rules and restrictions on stablecoins. He says that while many in the industry will lament stablecoin regulations, it’s likely a necessary stepping stone for the space.
“I think it’s going to err towards – and I’ve always thought this – nobody, not the government, wants unregulated stablecoins. They want central bank digital currencies (CBDCs), whether their private sector or state sector. I think there will be a blend. Nobody wants this. So they will use this as an excuse, and it’s probably good for people like Paxos, it’s probably good for people like Circle, and it’s not so good for people like Tether and Terra.
The problem is, if we are using, borrowing somebody else’s currency, then we have to play their game whether we like it or not. It’s their currency. So anybody who thinks, just because we’ve got some algorithm, it’s not the Federal Reserve’s currency, is [crazy].”
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