Stablecoins are created to be “stable”. These coins are pegged to a reference asset such as fiat currency like the US dollar. They are more volatile than crypto coins, making them a good investment.
The LUNA/UST were connected to the Terra ecosystem. Despite Kwon Do’s claim that LUNA had enough reserves to counter a crypto crash, it dropped to almost 99.9% when it actually happened.
The US government is now considering a two-year ban on the creation of “endogenously collateralized stablecoins” in a draft bill. The existing coins would be given two years to choose an alternate.
In other words, the existing stablecoins will be required to pick other methods to collateralize their offerings instead of the current one.
This decision doesn’t shock most of the crypto community because when the UST fell to decline, a lot of experts had predicted that governments would be stricter in regulations for stablecoins.
And this prediction seems to be coming true since the US government is officially considering this proposal and is most likely to approve it to protect consumers from financial risks.
How will stablecoins recover from this ban? Will they change their models for the US consumers or maintain the same algorithmic patterns in other countries, nothing can be said as of now.