WASHINGTON — Treasury Secretary Janet Yellen, reacting to the recent sharp drop in the value of cryptocurrencies, said Thursday that additional federal regulation is needed to address the wave of speculative investment in the currency whose secrecy is an essential part of its appeal.

“We really need a regulatory framework to guard against risk,” Yellen said of cryptocurrencies called stablecoins, during a House committee hearing on Thursday. Citing the rapid increase in the use of digital assets, she added: “Really, we need a comprehensive framework so that there are no gaps in regulation.”

Stablecoins are a type of cryptocurrency tied to a specific value, usually dollars, another currency, or gold. It is its parity with the dollar which, in theory, makes it stable. However, the volatility in the cryptocurrency market this week has challenged this premise.

“We had a real demonstration of the risks,” she said, referring to the collapse of TerraUSD from Monday.

Read more: Here’s why Bitcoin and other cryptocurrencies keep crashing

A run – or selloff by a large number of owners – on the Terra stablecoin, knocked its value down from around $8 to less than 30 cents.

A report from the Federal Reserve on Monday outlines how vulnerable stablecoins are to races.

“Terra broke the ball and this morning and yesterday the largest stablecoin Tether also broke the ball,” referring to another token that fell below its dollar peg this week.

Yellen was also asked during the hearing about the root cause of inflation, which has driven prices up, and how the administration plans to tackle rising costs for energy, housing and food.

She said the administration was doing what it could to address supply chain issues and other contributors to inflation.

“We have a very good, strong labor market, we have healthy household balance sheets,” as well as a strong banking sector, Yellen said.

“All of these things suggest the Fed has a path to lower inflation without causing a recession,” she said.

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