The general view on how Stablecoin works.
From a layman’s perspective, a stablecoin is also a digital asset like a cryptocurrency. But, stablecoins are normally pegged to a more concrete asset or fiat currency, which is usually the US dollar.
When the stock market crash happened in May, Terra’s USD and its sister token crashed devastatingly, losing nearly 99% of their value. Both digital assets started trading below $1. Since then, many crypto analysts and critics have questioned the credibility of stablecoins that are pegged to the value of another asset.
Response of banks around the world to the Terra disaster.
From the reports coming from central banks around the world, it is noticed that many banks have officially created their own central bank digital currency (CBDC). These tokens are either used by the bank’s consumers or used by the bank itself within its financial system.
Banks have resorted to this method to avoid the disastrous failure of other stablecoins such as Tether and USDC. Even these stablecoins are at risk of breaking down, as their value is also pegged to the US dollar.
Private regulation is more appropriate than state regulation for stablecoins.
According to Phillip Lowe, the regulation of stablecoins should be undertaken by private institutions rather than the state. He believes that private regulation will help stablecoins hold their value more significantly and also provide them with plenty of opportunities for development and growth in the market. The innovations and design features of these tokens can be taken to another level under privatized regulation, he says.
He also added that the state must believe in the stablecoin approach and support it as if it supports regular bank deposits.
The staggering effect of the stock market crash on stablecoin tokens.
The crypto market crash that occurred in May surely shook a lot of confidence among netizens when it comes to stablecoins. The Terra USD crash was not a good sight at all in the market. Since then, there are many doubts among investors in terms of stablecoin tokens.
I believe regulation is the need of the hour for any type of digital asset, be it stablecoin, cryptocurrency or NFT. The two main reasons for good regulation are to curb crimes against digital assets and to monitor them so that they do not collapse and fall aggressively. Privatized regulation can certainly provide many growth opportunities for the stablecoin, but it also presents the risk of monopolistic control in the hands of central banks.