• Washington is under increasing pressure to approve and discuss a regulatory framework that covers cryptocurrencies.
• The White House and lawmakers have become more worried about digital currencies since the fall of Terraform Labs’ stablecoin, and subsequent crash of the cryptocurrency market.

Representatives from the crypto industry are trying to calm concerns expressed by Washington lawmakers about stablecoin future after the fall of TerraUSD.

To understand whether cryptocurrencies are viable and how to stop UST from collapsing, lawmakers have been consulting both the Blockchain Association (and the Chamber of Digital Commerce) on the latest developments in crypto markets in recent weeks.

Last week, the cryptocurrency fell below parity with USD and plummeted to around 90%. This drew attention from Congress and regulators in the US.

Stablecoins make up a market worth $163 billion, which is led by and Other stablecoins, such as UST, have managed to grab a large share of the US crypto market.

The Lawmakers Try to Explain What Really Happened

The stability of stablecoins was supposed to make them safer than all other crypto currencies. They were pegged to the US dollar and other fiat currencies. The Terra incident has raised doubts about its stability, and caused panic on the crypto market.

Legislators and industry lobbyists asked questions about the structure of UST in an effort to find out if it could have been prevented or if there are other stablecoins at similar risk.

According to Reuters on Thursday, Lobbyists attempted to calm lawmakers’ anxiety by asking them not to use other stablecoins as a way to cope with the crisis.

“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 Association CEO Blockchain, Kristin Smith.

Yellen: “There are Risks to Financial Stability”

The ongoing crypto crisis is also a concern for the White House. US Treasury Secretary Janet Yellen told a Senate committee last week that Terra’s collapse is evidence that “digital assets may pose risks to the financial system, and increased and coordinated regulatory attention is necessary”.
In response to increasing scrutiny by lawmakers, and because of the growing concerns generated by the cryptocurrency crash, the crypto industry has been investing massive amounts in Washington this year.

Coinbase Global Inc (NASDAQ.O), has spent $1.5million on lobbying. Labs, however, has spent an additional $1.1 million. Public Citizen data shows that the Blockchain Association expended $900,000. The Digital Chamber of Commerce, $426,663 for public relations in 2021.

Flipside

• It remains to be seen what the full impact of the UST crash and the crisis that it has triggered will be. The crypto market suffered a massive decline over the past six weeks. It has fallen from $1.98 to $1.3billion.

Investor fears over recession, inflation and the Federal Reserve’s year-long rise in interest rates have completely changed the market’s outlook for the coming months.

What You Need to Care About

• Lobbyists attempted to show lawmakers the differences in fiat-backed stablecoins versus stablecoins such as Terra USD. They have no backing but rely on complex mathematical protocols to maintain their dollar peg.

A number of bills related to stablecoins are awaiting debate in the US Congress. Thursday’s Reuters report said that the pressure on Congress to approve a regulatory framework general for cryptocurrencies is increasing as both the market and industry show weakness in dealing with the crisis.

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