Terra crash sharpens Washington’s attention on cryptocurrency regulation

The collapse of the stablecoin TerraUSD USTUSD, 4.33% has caused disturbances in Washington, drawing in the attention of the nation’s top policymakers and adding urgency to an ongoing debate in Congress about cryptocurrency regulation.

“The markets last week definitely caught the eye of D.C.,” Ron Hammond, director of government relations at the Blockchain Association, a crypto industry group, told MarketWatch. “There’s definitely a group of investors who lost a lot of money, and that does elicit concern from folks on Capitol Hill.”He predicts that in the coming weeks there will be a large number of new proposals, some bipartisan, regulating stablecoins and other aspects of the crypto ecosystem.

Following Terra’s collapse, other stablecoins experienced volatility and a wave of redemptions. Tether, the largest stablecoin by market capitalization, briefly broke its peg with the dollar last week and has seen $7 billion in redemptions since. Tether said in a Monday blog post that the peg was never broken, because it continued to honor redemptions of $1 for one tether, even if the price on some exchanges fell below $1.

The drama was enough for Treasury Secretary Janet Yellen to encourage Congress to quickly pass a new regulatory framework and for Pennsylvania Sen. Pat Toomey, the top Republican on the Senate Banking Committee, to hold a press conference touting his legislation in this area.