Despite Terra Drop, Stablecoins will Help the US Win Over UK’s Crypto Leadership

Terra

TerraThe US is in a competitive international race with the UK to be the crypto leader!

Britain has unveiled plans to regulate some cryptocurrencies as part of a broader plan to become a global hub for digital payments, coming as authorities in the U.S. and Europe are racing to draw up rules for crypto. Cryptocurrencies have exploded in popularity, leaving officials worldwide scrambling to figure out how to regulate them amid fears they could threaten financial stability and hurt consumers. Crypto proponents say the technology will make payments faster, easier, and more transparent, while skeptics worry it could be used for illegal activities like money laundering and contribute to carbon emissions because of the heavy computing power needed to process transactions. In March, the United States stepped up government oversight of cryptocurrency while European Union lawmakers agreed on draft rules for crypto assets.

The week of the terraUSD (UST) collapse was among the most painful weeks in crypto history – and one we’ll reckon with for a long time. It wrought havoc on the crypto market, resulting in billions of dollars in lost value. And while those in Washington, D.C., rightly debate the next steps, a smart, thoughtful conversation around potential regulation is critical.

There are more than 200 stablecoins, and two of the biggest are Tether and USD Coin. Stablecoins are often used to pay fees on cryptocurrency trading exchanges or send payments across borders.

Stablecoins are a vital innovation, providing many benefits for users and a competitive advantage for the United States. Stablecoins improve efficiency in payments and transfers, reducing costs and accelerating settlement for businesses and consumers. They make the financial system more inclusive by offering open access to anyone, anywhere, regardless of their background or economic status. They can also advance U.S. geopolitical interests, strengthening global dollar dominance in the face of attempts by our adversaries – such as China and Russia – to undermine U.S. leadership in the financial system.

 

Two Types of Stablecoins

Custodial stablecoins are issued by a central administrator and backed by collateral held in a bank or other institution. They are usually fully collateralized: The issuer holds one dollar in the bank for every one dollar of stablecoins it issues.   Decentralized stablecoins are designed to address the fact that not all issuers are trustworthy or transparent. Like the public blockchains that enable them, their goal is to eliminate dependence on trusted intermediaries in the financial system, who often do more harm than good.  However, UST was in a category of its own, relying solely on an algorithmic mechanism to maintain price stability with no collateral whatsoever, a risky model that many predicted might fail.

Stablecoins present too big an opportunity for us to risk getting them wrong as a matter of policy. The U.S. is in a competitive international race to be the home of Web 3. It’s time for strategic thought and deliberate action. The future of the U.S. as a hub of global crypto innovation hangs in the balance.