Law Decoded: Is depegging a real threat to financial stability?

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Law Decoded: Is depegging a real threat to financial stability?

Janet Yellen calls on lawmakers to develop a consistent federal framework for stablecoins, Hester Peirce urges to allow room for failure and more.

This week will be remembered as the one when the stablecoins showed an unexpected ability to depeg. Terra’s TerraUSD (UST) dropped to a shocking $0.29 following the general meltdown of both crypto and financial markets, but it was also the headliner of stablecoins’ niche, while Tether (USDT) lost the balance and slid to $0.96 for a short time. 

The United States Treasury Secretary Janet Yellen felt it necessary to assure everyone that, given the stablecoins’ market size, depegging didn’t present a threat to America’s financial stability. At the same time, she called on lawmakers to develop a “consistent federal framework” on stablecoins to address risks. You can’t be too careful, right?

Commissioner Hester Peirce, though, seems to be in a mood for experiments. Known as the Crypto Mom, she noted that while the stablecoins should have their own regulatory framework, regulators need to allow room for failure, “Because that obviously is part of trying new things.”

Public support, public roast

The closest analog to stablecoins, the central bank digital currency (CBDC), is slowly making its way, at least in the policymakers’ plans. The Bank of Israel bragged about the public support for its “digital shekel” initiative, which has been halted at some point, but went into a new phase of testing last year. In that sense, there’s not much to brag about for the European Central Bank, which is continuing to pitch to the public various anonymity options for its digital euro.

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How to get the UN pro-crypto

It is not often that we hear from large international organizations any concerns about the crypto market’s suppression. So, the prize goes to the Central Bank of Nigeria (CBN), which is pushing so hard to kill any competition from private digital currencies to its CBDC, eNaira, that the United Nations and the Secretary-General of the Organisation for Economic Co-operation and Development (OECD) had to admit: “The restrictions have crippled foreign direct investment in the fintech industry and negatively impacted millions of young Nigerians who earn a living from the sector.” The problem is that it doesn’t seem to bother CBN too much.

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No tax for hodlers

While some are trying to hold innovation, others make life easier for holders. Germany’s Finance Ministry released new cryptocurrency tax guidelines. Under it, the individuals who sell Bitcoin (BTC) or Ether (ETH) more than 12 months after acquisition will not be liable for taxes on the sale if they realize a profit. Furthermore, Bitcoin miners that acquire newly minted BTC will also have waived tax payments after a year of holding.

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