Treasury Secretary Janet Yellen on Thursday addressed the loss of US dollar pegs by the stablecoins TerraUSD and Tether.
The moves don't yet pose a real threat to financial stability but risks are rising, she said.
Algorithmic stablecoin TerraUSD was trading at $0.33 on Thursday afternoon.
Treasury Secretary Janet Yellen on Thursday called for unified federal regulation on digital assets in addressing the loss of US dollar pegs by stablecoins TerraUSD and Tether during a selloff that's wiped hundreds of billions of dollars from the cryptocurrency market.
Her testimony before the House Financial Services Committee took place days after the algorithmic stablecoin TerraUSD sharply declined below its $1 peg. The spreading turbulence in the crypto market also sent Tether's price below that of the greenback before it regained parity.
Stablecoins derive their value from being pegged to another asset, which is supposed to lessen their volatility compared with other cryptocurrencies like bitcoin and ethereum. Stablecoins have caught the eye of regulators in part because they are designed to be pegged to the US dollar.
"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," Yellen told lawmakers. The House Financial Services Committee was holding a hearing on the annual report of the Financial Stability Oversight Council.
More than $300 billion has been wiped off the value of the overall crypto market between Monday and Wednesday, according to figures from CoinMarketCap. Crypto prices continued to fall on Thursday, sending the market's value to around $1.22 trillion. TerraUSD, the flashpoint of the current market downturn, recovered some ground but at $0.33 was still below its $1 peg.
Yellen characterized stablecoins as assets that purport to guarantee conversion at-will to the dollar on a 1-for-1 basis.
"Really we need a comprehensive framework so that there are no gaps in the regulation" as the use of digital assets is rapidly increasing, said Yellen.
The President's Working Group on Financial Markets in November released a report asking Congress to create regulations for stablecoins
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