Terra’s recent collapse could hasten cryptocurrency regulation by legislators, according to Jeremy Allaire.

A few weeks ago, Terra’s UST was the third-largest stablecoin in the market. However, since it is no longer pegged to the US Dollar. It has lost its position as one of the top stablecoins in the market.

The company’s other products, including the Terra Credit (CREDIT) token and the TerraUSD (UST) stablecoin, have also been affected.

The sudden collapse of such a large stablecoin has led many to believe, that stricter regulations need to be put in place; for altcoins and digital assets. Circle CEO Jeremy Allaire says:

“We have seen some big blowups recently with Bitcoin and Ethereum. This only increases the need for Congress to act and set some boundaries about who can operate a dollar-stablecoin in the US.”

He went on to say that while he doesn’t believe every digital asset needs to be regulated in the same way. There does need to be a light touch when it comes to stablecoins.

Anchor Protocol was a major project on the Terra blockchain that deals with decentralized finance.

Allaire says the exorbitant-interest rates provided by Anchor to depositors, should have been an early warning that; the Terra system will eventually crash. He states;

“I think what has happened with these unsteady stablecoins, such as UST, was completely predictable. Our analysis from a long time ago suggested that the foundation for this was subsidizing yields. Which drove individuals to buy Luna coins to create UST tokens and put them in a 20% interest rate that was too good to be real.”

Allaire’s comments come a few days after the United States Treasury Secretary Janet Yellen. Calls for new crypto regulations following the Terra crisis. She says;

“I wouldn’t call it a genuine risk to financial stability. However cryptocurrencies are growing rapidly, and they pose the same kinds of threats that we’ve known about for centuries in connection with bank runs.” She continues;

“I believe we must evaluate the advantages of cryptocurrencies and other digital assets, as well as their potential to improve the financial system’s efficiency. Crypto assets, on the other hand, raise many important issues. They’re subject to little or no regulation, which raises concerns about consumer and investor protection. Given their unpredictability, they pose a kind of threat to the financial space.”

Legislators around the world are starting to take notice of cryptocurrencies, and the collapse of Terra may prompt them to act.

Circle CEO Jeremy Allaire says that while cryptocurrencies don’t pose a genuine risk to financial stability, they do raise several serious concerns.

The LUNA token, the native currency of the Terra ecosystem, has tumbled down to number 211 in terms of market capitalization. It is now ranked 211th in the overall cryptocurrency market. Allaire concludes that;

“I believe this regulatory clarity is a significant stopping block between broad-based, worldwide adoption of crypto infrastructure for commercial and financial applications. And I think we have the momentum to see it happen right now.”

“It is incumbent upon those of us who believe in this technology to help design and implement guardrails. That protects consumers and investors, and that promotes responsible innovation.”

In light of the recent Terra collapse. Circle CEO Jeremy Allaire believes that legislators may be prompted to take action as regards cryptocurrencies. Altcoins, or alternative coins, are often used interchangeably with cryptocurrency.

What do you think? Do you agree with Allaire that stricter regulations need to be put in place for altcoins and digital? Please us know your thoughts in the comment section.

James Atkins

I have been writing copy for blockchain-related projects since 2017. I understand the importance of being able to communicate clearly and effectively with both technical and non-technical audiences. By leveraging my understanding of the crypto industry trends, I can help increase adoption in this rapidly evolving landscape.