Title: U.S. crypto lobbyists in push to contain fallout from stable coin meltdown

May 19, 2022 06:06AM ET

By: AnalysisWatch

The cryptocurrency industry is scrambling to respond to US lawmakers' concerns about stablecoin following the collapse of TerraUSD, which lost billions in the cryptocurrency market.

The Blockchain Association and the Chamber of Digital Commerce, which represent some of the most influential cryptocurrency companies, say they have received many questions from Capitol Hill after TerraUSD, known as "UST," broke its peg last week and collapsed 90%.

Stablecoins are cryptocurrencies that struggle to maintain a fixed exchange rate with fiat currencies. The $163 billion field is dominated by tokens pegged to the U.S. dollar, such as Tether and USD Coin, which hold reserves in traditional dollar-denominated assets. However, some stablecoins, such as UST, use a complex algorithmic process to create pegs.

Since the cryptocurrency market exploded to the $3 trillion level in November, policymakers have become increasingly vigilant.

In response, the cryptocurrency industry has increased its presence in Washington, spending $9 million on lobbying in 2021, according to Public Citizen. The Blockchain Association and the Chamber of Digital Commerce spent $900,000 and $426,663, respectively, while cryptocurrency giants Coinbase (NASDAQ: COIN) Global Inc. and Ripple Labs spent $1.5 million.

The industry's growing influence will be put to the test as it struggles to cope with the impact of the crisis in the United States and the broader cryptocurrency market, which has shrunk from US $1.98 trillion to US $1.3 trillion in just six weeks due to investor fears of rising interest rates.

Cryptocurrencies are in a regulatory grey area.

President Joe Biden's administration has focused mainly on regulating stablecoins in dollars. In November, a Treasury Department report recommended that Congress regulate stablecoin issuers as insured depository institutions, but algorithmic stablecoins were not included.