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Stablecoins’ recent de-pegging is not a ‘real threat to financial stability,’ says Janet Yellen


According to United States Treasury Secretary Janet Yellen, the stablecoin market is not at the scale at which the drop in the cost of TerraUSD (UST) and Tether (USDT) listed below $1 would provide a threat to the nation’s financial stability.

In a Thursday hearing of the House Financial Services Committee on the Financial Stability Oversight Council’s Annual Report to Congress, Yellen hinted that the stablecoin market was not yet at a size in which UST dropping to under $0.40 and USDT — the biggest stablecoin by market capitalization — briefly de-pegging from the dollar to struck $0.96 would produce a “real threat to financial stability.” The Treasury Secretary pointed out a November report from the President’s Working Group on Financial Markets and stated the council was presently examining “potential financial stability risks” in the digital property area.

“They’re growing very rapidly,” stated Yellen, referring to digital properties. “They present the same kind of risks that we have known for centuries in connection with bank runs.”

U.S. Treasury Secretary Janet Yellen resolving members of the House Financial Services Committee on Thursday

Yellen included that a reserve bank digital currency in the United States might have “a very significant impact on the structure of financial intermediation,” regardless of possibly having less threats than stablecoins. Her remarks followed the Treasury Secretary resolving the Senate Banking Committee at a Tuesday hearing when she contacted legislators to establish a “consistent federal framework” on stablecoins to address risks.

Related: Yellen says crypto hasn’t been used for significant Russian sanctions evasion so far

UST was pegged to the dollar until Monday when a mass sell-off triggered extreme volatility in the price of Terra (LUNA) and many major cryptocurrencies including Bitcoin (BTC) and Ether (ETH). The stablecoin dropped roughly 70% to a price of $0.29 on Wednesday, and is still de-pegged from the dollar at the time of publication, at $0.37. USDT, in contrast, was de-pegged for roughly 12 hours starting on Wednesday before returning to $1.00.

Cointelegraph reported that validators for the Terra blockchain officially halted network activity on Thursday, aiming to prevent governance attacks following the devaluation of LUNA. Binance also delisted its LUNA/USDT contracts after the price fell below 0.005.