(Bloomberg) -- Treasury Secretary Janet Yellen gave the US government’s most forceful response yet to the meltdown of TerraUSD, saying that the crypto stablecoin’s woes underscore the risks associated with the asset class.
Yellen said on Thursday that Terra’s specular tumble show the dangers of tokens that purport to be pegged to the US dollar. She called for new regulations and said added that Treasury was working on a report about their dangers.
“I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks that we have known for centuries in connection with bank runs,” she told lawmakers on the House Financial Services Committee.
Concerns around stablecoins have also proliferated in the past week on Capitol Hill after TerraUSD, or UST, lost its peg to the dollar over the weekend. UST is a so-called algorithmic stablecoin, meaning that it’s not backed by assets like cash or cash-equivalents. Instead, it relies on trading and treasury management to maintain its value.
In the most recent twist, one exchange-traded product tied to Terra saw its price almost evaporate in what may be the biggest ETP wipeout ever.
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