Market instability in stablecoins will need to be taken into account, the FCA’s executive director for markets said.
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.
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 Treasury and the FCA were not immediately available to comment when contacted by CoinDesk on Friday.