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U.S. crypto lobbyists in push to contain fallout from stablecoin meltdown -Breaking

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© Reuters. FILE PHOTO – A smartphone with the Tether logo appears on the U.S. dollar in this illustration, taken May 12, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Hannah Lang

WASHINGTON, (Reuters) – The U.S. Congress raised concerns regarding stablecoins after TerraUSD collapsed. This event wiped out billions of dollars from the crypto market.

Chamber of Digital Commerce and Blockchain Association, representing some of the largest crypto companies in the world, have received a lot of inquiries from Capitol Hill, since TerraUSD (formerly “UST”) broke its peg and plummeted 90% last week.

Stablecoins, cryptocurrencies which attempt to keep a consistent exchange rate with fiat currency are called stablecoins. It is the dominant space in $163 billion. Tokens are tied to U.S. dollars, as well as holding traditional dollar assets. However, there are some stablecoins that use complex algorithms to generate the peg, such as UST.

Capitol Hill legislators have been questioning lobbyists about the structure and potential fate of other stablecoins.

Lobbyists want lawmakers to not be too harsh on stablecoins.

“The one thing we’ve been cautioning to the Hill is that we don’t want to accidentally throw the baby out with the bathwater, because stablecoins we think are a really critical piece of the crypto ecosystem going forward,” said Kristin Smith, executive director of the Blockchain Association.

With the rise of the cryptocurrency market, which reached $3 trillion in November 2017, policymakers have been more vigilant.

According to Public Citizen, this has resulted in the cryptocurrency industry spending $9 million in lobbying efforts in Washington. While the Blockchain Association and Chamber of Digital Commerce each spent $900,000. and $426.663, respectively, crypto giants Coinbase and Labs paid $1.5million and $1.1 million, respectively.

REGULATORY GRAY AREA

It will test the industry’s increasing influence as it tries and contain the fallout of the UST or wider crypto market crash. The crypto market crashed from $1.98 Trillion to $1.3 Trillion in six weeks due investor fear over rising rates.

Current draft stablecoin bills are floating around Congress. Although analysts believe that Congress will not pass these bills in this year’s midterm elections due to lawmakers being focused on other matters, many legislators are taking notice of recent market movements.

“There are a lot of people in Congress that are interested in coming up with a regulatory framework to prevent something like this from happening again,” said Smith.

Cryptocurrencies are in a gray regulatory area.

Biden’s administration has focused mainly on regulations for stablecoins that are dollar-backed. A Treasury Department report in November recommended that Congress regulate stablecoin-issuers such as insured depository institution, but did not include algorithmic stablecoins.

They say lobbyists had to change their stance quickly and inform lawmakers about the differences.

“All of the recent legislative proposals have been fiat-backed,” said Cody Carbone, policy director at the Chamber of Digital Commerce. “We thought we did pretty well in educating because we stayed within that scope, and now we’re going to have to broaden that.”

Carbone said that although the members of the group do not operate algorithmic stabilizecoins at the moment, they are creating talking points to describe how they work.

The U.S. dollar stablecoins may be vulnerable to run if their users lose confidence. This fear has been echoed by regulators. Tether, which is the biggest stablecoin in America, broke its peg after UST did.

“This is essentially a call to action, because not all monies are created equal, and what one believes to be stable may actually not be stable,” said Jonathan Dharmapalan, CEO of eCurrency, a digital currency technology provider.

While the Blockchain Association’s Smith agreed legislation was not imminent, the UST problem “certainly heightens that need,” she said.

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