From Tether to Terra: The Current Stablecoin Ecosystem and the Failure of Regulators

Authors

Mary E. Burke, Fordham University School of Law

Keywords

Stablecoins, Regulation, Digital Currency, Financial Law, Cryptocurrency

Abstract

The Tether controversy and Terra crash have placed stablecoins in the regulatory spotlight. Stablecoins are often portrayed as posing systemic risks to financial markets, with some pundits labelling them “the villain of the finance world.” Global regulatory bodies, namely the International Monetary Fund (IMF) and the Bank of International Settlement (BIS), and political leaders, including the Biden Administration, have all called for stablecoin regulation. These officials allege that stablecoins’ structure, combined with their exponential growth, pose a unique risk to global markets. Before the May 2022 Terra crash, government reports superficially treated stablecoins by exclusively focusing on asset-backed coins. Post hoc, regulatory reports treated Terra’s collapse as inevitable, using the failure as an opportunity to push for a central bank digital currency (“CBDC”) in the United States.

Whether stablecoins should be regulated is not up for debate. Their regulation is imminent. Yet, how stablecoins should be regulated and if CBDCs can be an adequate replacement is another matter. In the words of the Commodities Future Trading Commission’s (CFTC) Dawn Stump: “As financial markets evolve and adapt to new demands, market regulators must not stifle beneficial innovations by clinging rigidly to regulatory approaches of the past that may no longer be fit for purpose.”

Recommended Citation

Mary Elizabeth Burke, Note, From Tether to Terra: The Current Stablecoin Ecosystem and the Failure of Regulators, 28 Fordham J. Corp. & Fin. L. 99 (2023).