Treasury Secretary Yellen Says Stablecoins Pose Financial Stability Risks, Cites Collapse of TerraUSD (UST)

U.S. Secretary of the Treasury Janet Yellen is calling for legislation that will regulate stablecoins to eradicate the risks she believes they pose to financial stability.

While testifying before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Yellen said the government is already aware that stablecoins are currently operating in an inadequate regulatory and statutory environment.

“The President’s Working Group issued a report concluding that current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment product and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal credential framework.

I would urge on bipartisan action to create such a framework. We would look forward to working with you.”

Citing a newspaper report indicating that the TerraUSD (UST) algorithmic stablecoin, which is designed to exchange one for one versus the US dollar, had lost its peg, Yellen says that is more evidence of the risks that the rapidly expanding stablecoin sector poses to financial stability.

“I would note that there was a report just this morning in the Wall Street Journal that a stable coin known as TerraUSD experienced a run and had declined in value.

I think that simply illustrates that this is a rapidly growing product and that there are risks to financial stability and we need a framework that’s appropriate.”

TerraUSD is trading at $0.71 at time of writing, after earlier falling to a low of $0.30.

Last month, the U.S. Treasury Secretary expressed a similar sentiment when she cited the collapse of a partially collateralized stablecoin issued by the Iron Finance DeFi platform.

Yellen called for a regulatory framework in the digital asset space that supports “responsible innovation” while managing risks adequately.

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