Crypto regulation needs to allow for 'trial and error' in the market and account for variations between stablecoins, SEC Commissioner Hester Peirce says

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SEC Commissioner Hester Peirce.Chris Maddaloni/CQ Roll Call
  • Crypto regulation should leave room for innovation to flourish or fail, said SEC Commissioner Hester Peirce.

  • She also spoke about stablecoins that were in focus as the price of US-dollar pegged TerraUSD coin plunged.

  • The crypto proponent said variations in the market make it "difficult" to craft a regulatory framework.

The growing cryptocurrency market needs regulatory support to allow innovation to flourish and to flop, and the spotlight thrown on stablecoins during this week's plunge of TerraUSD highlights the need to be mindful of variations in digital assets, Securities and Exchange Commission member Hester Peirce said Thursday.

Peirce, known as a crypto proponent, said during a virtual forum that investors may see some "movement" in Washington around stablecoins, which have already caught the eye of regulators in part because of their pegs to the US dollar.

The crypto market this week has focused on algorithmic stablecoins whose values are derived by a combination of computer codes and reserves to maintain a peg. That focus was sparked by the price meltdown of algorithmic stablecoin TerraUSD below $1 and the slide of its sister coin luna to a $0 value. Algorithmic stablecoins differ from so-called traditional stablecoins such as Tether which are also pegged to a fiat currency but backed by hard assets such as cash, government bonds or commodities.

"[There's] a lot of use of stablecoins and therefore people are thinking down the road, 'If this gets even bigger do we want to have some kind of a regulatory framework?'," said Peirce during a panel discussion held by the Official Monetary and Financial Institutions Forum. The OMFIF is an independent think tank centered on central banking, economic policy and public investment.

"As with anything in crypto, I think it's very important to remember that one term can cover a lot of different types of assets. So you might say stablecoin and one stablecoin might look nothing like another stablecoin," she said. "I think it is very important to approach all of the conversations in crypto with an understanding that there's a lot of variation."

Variations do make it "difficult" to craft a regulatory framework, said Peirce, who was sworn in as an SEC commissioner in 2018. "[You're] trying not only to cover what exists today, which is very varied, but you're trying to think down the road of what is going to exist tomorrow and that's not easy to do."

Stablecoins can be used to facilitate quick transactions in the cryptocurrency market or as a place to park funds during times of volatility. US President Joe Biden in March signed an executive order requiring government agencies this year to report on their tasks in overseeing digital assets as there is no single federal agency in charge.

Peirce said she's urged the SEC, which is focused on enforcement, to use its regulatory tools to provide exemptions from its existing rules that are tailored to a particular technology.

"[That] would allow for iteration and experimentation which I think is really important at the outset of any technology. And with experimentation, I should just say, we need to allow room for there to be failure as well because that obviously is part of trying new things out," she said.

"And our framework really does allow for that kind of trial and error and I hope that we will use it for that purpose," she said.

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