Algorithmic Stablecoins are Coming Under Scrutiny from Policy-Focused Intellectuals

Washington’s political intellectuals are now turning to CBDC’s topic and the stablecoin policy of US Capital. The President’s working group is focusing hard on making this a top priority legislative item, whereas the regulatory apparatus has been focusing on stablecoin for the last few months. 

As just high-priority items attract heavy-hitting intellectuals to the policy discussion as a part of a legislative process, some are new to the crypto world but get educated quickly. Others have engaged with crypto, at least tangentially, for years. 

According to the PWG report, the focus is more on stablecoins that depend on fiat-based reserve assets and the most common format for the biggest stablecoins. including USDT, USDC and BUSD. 

The overall supply of stablecoins has stagnated and declined since early April. The leading algorithmic stablecoin, TerraUSD has the notable exception to this trend, but it has seen its peg slip in the last two days, in response to the new generation regulatory framework. 

The UST, stablecoin is plunging heavily, and press time is trading at $0.35 roughly. In action to these reports and president Biden’s recent executive order, the regulators and think tanks that flourish through DC have turned their attention towards stablecoins.

Nellie Liang, who led the PWG report moderated a panel at the Atlanta Fed’s Financial Markets Conference, which was focused on the outlook for central bank digital currencies, with guests from academia, think tanks, and Fed. Liang also said that the stablecoins that have not been regulated prudently even now, are subject to BSA AML requirements at the state level.

The other panel “Blockchain in the Beltway” was hosted last week by one of Liang’s guests, Paul Kupiec of American Enterprise Institute And a major think tank. The Discussion was focused more on private stablecoin, and Senator Pat Toomey’s Stablecoin TRUST Act.

Further, a senior fellow at Brookings, Aaron Klein has written about the impact of Biden’s crypto executive order. He also briefed his interest as a combo of continuing long-run research into the broad field coupled with the growth of a booming industry.  

Klein  Continued: “I am working on plenty of aspects of it, including the rise of crypto’s appeal among minority investors, there are a lot of work going on at Brookings, and other think tanks but particularly Brooking, into what’s going on with stablecoins,” stated Klein. 

According to Kupiec, several kinds of private stablecoins are legitimate payment mechanisms, and other kinds of stablecoins known as algorithmic stablecoins, are less legitimate. He further said that he did not advocate legislation for addressing algorithmic stablecoins. 

Rohan Grey, one of the co-authors of crypto-related legislation like the STABLE Act and the ECASH Act, and an associate professor at Willamette University. PWG reported almost complete sidestepping of the stablecoin algorithm issue in his tweet on May 9.