The spectacular plunge and trading halts of the algorithmic stablecoin TerraUSD are touching off a debate among lawmakers over whether, and how much, the government should get involved.
As Terra crashed last week, prominent Republicans said the asset class shouldn’t be regulated at all because of its limited reach into traditional financial markets and uncertain impact. Democrats are calling for regulatory rules that would protect investors, an acknowledgment that any legislation is likely to stall in the current Congress.
Terra had been the largest “algorithmic” stablecoin, a digital asset designed to always maintain a value of $1 through market incentives rather than backing by cash or securities. Typical stablecoins, such as dollar-pegged Tether and USD Coin, hold liquid assets in reserve.
