Reeve Collins - Tether co-founder: UST crisis bodes death for stablecoins

Collins stated that the loss of money within the Terra ecosystem was regrettable but not unexpected.

CNBC stated that Tether (USDT) co-founder Reeve Collins believes the collapse of TerraUSD (UST), which has now been renamed TerraClassicUSD (USTC), could be the catalyst for the demise of other algorithmic stablecoins.

Collins made this remark during an interview at the World Economic Forum in Davos, Switzerland. The fall, he noted, "was hardly a surprise."

Collins said:

It’s an algorithmic-backed, stablecoin. So it’s just a bunch of smart people trying to figure out how to peg something to the dollar.

Collins highlighted that many people cashed out UST in recent months after discovering the stablecoin was unsustainable. Consequently, the stablecoin plummeted, dragging down the entire cryptocurrency market.

Collins feels that algorithmic stablecoins have not seen the worst of it yet, despite the gloomy state of the crypto market. According to him, additional algorithmic stablecoins may soon follow UST, bringing an end to their species.

Various emotions

Collins feels the era of algorithmic stablecoins is coming to a close, while Jeremy Allaire, CEO of Circle, the issuer of USD Coin (USDC), believes innovators are not quite finished.

He further noted,

I’ve compared algorithmic stable coins to the Fountain of Youth or the Holy Grail. Others have referred to it as financial alchemy.

In this regard, he believes that financial alchemists will continue to strive on the Holy Grail of a steady value.

Allaire argues that regulators may prohibit algorithmic stablecoins from interacting with the market and the financial system due to the inherent hazards they pose.

Doubling regulation of stablecoins

As a result of the UST catastrophe, financial watchdogs and legislators have been pressing for stablecoin regulation with growing urgency. For example, the British government recommended revisions to legislation to better control stablecoin issuers.

In a consultation document released on 31 May, the government emphasized the importance of ensuring that existing regulatory frameworks can effectively assist in mitigating the risks posed by the potential systemic failure of digital settlement asset providers.

In addition to the United Kingdom, the United States may accelerate stablecoin adoption, according to Hester Peirce, Commission of the Securities and Exchange Commission. Peirce stated that the UST debacle will prompt regulators to immediately rein in stablecoins.

Although regulators have not yet disclosed how they intend to regulate stablecoins, it is expected that they will implement laws mandating stablecoin issuers to use physical assets as reserves for their tokens.

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