UK Regulator to Consider Terra Coins’ Collapse in New Crypto Rules: Report

Market instability in stablecoins will need to be taken into account, the FCA's executive director for markets said.

AccessTimeIconMay 20, 2022 at 9:06 a.m. UTC
Updated May 11, 2023 at 3:35 p.m. UTC
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The U.K.'s financial regulator and its finance ministry, the Treasury, will scrutinize the collapse of the Terra ecosystem's crypto tokens while creating new rules for crypto assets, Bloomberg reported on Friday.

Recent market instability in stablecoins “will absolutely need to be taken into account” when the Financial Conduct Authority works with the Treasury to create the rules later this year, Sarah Pritchard, the FCA's executive director for markets, told Bloomberg.

On May 13, Terra's UST algorithmic stablecoin slumped as low as 23 cents, and the LUNA token, created to prevent the UST algorithmic stablecoin from being volatile, fell 96% at one point. An algorithmic stablecoin is one that in theory maintains its peg using only software and rules, meaning it is not necessarily backed by collateral. Instead, the token’s programming, or smart contract, can increase supply if the price is falling or reduce supply if the price is increasing.

"Recent events in crypto asset markets have highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks," a spokesperson at the Treasury said. "The government will continue to work with the regulators to address these risks as it develops its legislative approach."

In March, the U.K. said it will work on a new crypto regulatory package and planned to regulate stablecoins. In its consultation, the government proposed that algorithmic stablecoins should not be regulated.

The FCA were not immediately available to comment when contacted by CoinDesk on Friday.

UPDATE ( May 20, 11:45 UTC): Adds Treasury comments.


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Camomile Shumba

Camomile Shumba is a CoinDesk regulatory reporter based in the UK. She previously worked as an intern for Business Insider and Bloomberg News. She does not currently hold value in any digital currencies or projects.

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