UK regulator to include Terra Coins collapse in new crypto rules_ report

UK regulator to include Terra Coins collapse in new crypto rules_ report

The instability of the stablecoin market must be taken into account, said the FCA's director in charge of markets.

The U.K.'s Financial Conduct Authority and the U.K. Treasury will scrutinize the collapse of the Terra ecosystem crypto tokens as they draft new rules for crypto assets, Bloomberg reported Friday.

The recent market instability in stablecoins "absolutely must be taken into account" when the Financial Conduct Authority (FCA) works with the Treasury to craft the rules later this year, Sarah Pritchard, the FCA's managing director for markets, told Bloomberg.

On May 13, Terra's algorithmic stablecoin UST plummeted to as low as 23 cents, and the LUNA token, created to prevent volatility in the algorithmic stablecoin UST, fell 96% at one point. An algorithmic stablecoin is a token that theoretically maintains its value only through 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 falls or decrease supply if the price rises.

In March, the United Kingdom said it would work on a new crypto regulatory package and planned to regulate stablecoins. In its consultation, the government suggested that algorithmic stablecoins should not be regulated.

The Treasury and FCA were not immediately available for comment when contacted by CoinDesk on Friday.