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Risks of Stablecoins Highlighted as Terra’s Peg Breaks
The failure of the algorithmic peg mechanism fixing the price of Terra’s USD stablecoin (UST) and the umooring of Tether from its USD peg highlight the fragile nature of private stablecoins, and will accelerate calls for regulation, says Fitch Ratings. We have previously indicated that algorithmic stablecoins have struggled to win regulatory acceptance, as they can face particular risks in maintaining a stable value. In the case of UST, the backing entity’s crypto reserve was not sufficiently large to serve as a source of stability when the UST’s algorithmic peg mechanism came under speculative pressure. Over ... (full story)