Cryptocurrency industry scrambles to respond to U.S. lawmakers' concerns

The industry is scrambling to respond to U.S. lawmakers' concerns about stablecoins after the collapse of TerraUSD, which wiped billions off the criptocurrency market.

The Chamber of Digital Commerce and the Blockchain Association have been fielding a lot of questions from Capitol Hill since TerraUSD, known as UST, broke its peg last week and crashed 90%, according to a report by the Chamber of Digital Commerce and the Blockchain Association.

Stable cointries try to maintain a constant exchange rate with fiat currencies. The $163 billion space is dominated by tokens that are tied to the U.S. dollar, like Tether and USD Coin, by holding reserves in traditional dollar assets. Some stable coins, like UST, use a complex algorithmic process to create the peg.

Capitol Hill lawmakers have been quizzing lobbyists on the structure of UST, trying to determine whether its collapse was preventable and if other stable coins could suffer the same fate.

Lobbyists are urging legislators not to crack down too hard on the gamut of stable coins.

Kristin Smith, executive director of the Blockchain Association, said we don't want to throw the baby out of the bathwater, because stable coins are a really critical piece of the crypto ecosystem going forward.

The scrutiny of policymakers has increased as the market for cryptocurrencies reached $3 trillion in November.

The industry has increased its presence in Washington, spending $9 million on lobbying in 2021, according to Public Citizen. The Chamber of Digital Commerce and the Blockchain Association spent $900,000 and $426,663, respectively, while the Coinbase Global Inc and Ripple Labs spent $1.5 million and $1.1 million respectively.

The industry's influence will be tested as it tries to contain the fallout from the UST and broader market crash in just six weeks, which shrank from $1.98 trillion to $1.3 trillion due to investor fears over rising interest rates.

There are currently a number of bills floating around the country that are intended to be passed on the back of a stable coin. The chances of Congress passing any of those this year is slim with lawmakers focused on the midterm elections, recent crypto market gyrations have caused many lawmakers to take notice.

There are a lot of people in Congress who are interested in a regulatory framework to prevent something like this from happening again, said Smith.

President Joe Biden's administration has largely focused on rules for dollar-backed stablecoins. A November Treasury Department-led report recommended that Congress regulate stable coin issuers like insured depository institutions, but it did not cover algorithmic stable coin issuers.

Lobbyists have had to change tack and educate lawmakers on the differences, they say.

Cody Carbone, policy director at the Chamber of Digital Commerce, said all of the legislative proposals have been backed by fiat. We thought we did well in education because we stayed within that scope, and now we're going to have to broaden that. The chamber is crafting talking points to explain how they work, despite the fact that they do not currently operate algorithmic stable coins, said Carbone.

After UST broke its peg, Tether, the largest stable coin, broke its peg briefly, as well as warned by regulators that U.S. dollar stablecoins could be susceptible to runs.

Jonathan Dharmapalan, CEO of eCurrency, said that this is a call to action because not all monies are created equal, and what one believes to be stable may not be stable.

The UST problem heightens the need, according to Smith, the Blockchain Association's Smith agreed that legislation was not imminent.