Algorithmic Stablecoins Could Be Banned For Two Years, According To U.S. Bill

The bill, which will be discussed in the House of Representatives next week, outlines a series of steps to be undertaken before the issuance and circulation of Terra-like stablecoins is approved.
The launch of any new stablecoin project in the country would also be subject to prior approval by U.S. regulators.

Algorithmic stablecoins similar to TerraUSD could be banned in the U.S. for two years if the bill, which seeks to regulate their issuance, is passed by Congress. The proposal could be presented by a committee to the House of Representatives and voted on as soon as next week.

The bill would make it illegal to issue or create new “endogenously collateralized stablecoins,” Bloomberg reported, citing a copy of the proposal. The restriction would apply to stablecoins that can be traded, converted, or exchanged for their equivalent in fiat money.

Regulations for Stablecoins at the Gates

After the collapse of Terra (UST) in May, concerns erupted in Washington over the circulation of algorithmic stablecoins. UST maintained a par value with the U.S. dollar through an algorithm, and traded in tandem with its sister token, Luna.

The failure of the UST ecosystem caused a devastating ripple effect across the entire crypto industry, causing the demise of dozens of businesses, including lenders, crypto exchanges, and storage platforms, dragging the market into a crypto winter, and the market wide crash of all cryptocurrencies.

Thousands of people lost their savings, both in and outside of the United States, causing politicians and policymakers in the US to turn their attention to the operation and trading of stablecoins.

New Stablecoin Projects Will Go Through a Filter

The bill proposes that all projects pertaining to new algorithmic stablecoins must first be previously submitted to study. The entity in charge of evaluating the viability of the project would be the Treasury, in consultation with the Federal Reserve and other regulatory bodies, such as the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation.

House Financial Services Committee Chair Maxine Waters and Ranking Member Patrick McHenry are the lead contributors to the stablecoin legislation, the publication said.

It’s not yet clear whether North Carolina Republican Rep. McHenry has signed off on the latest draft of the bill, multiple people briefed on legislative discussions around the issue said.

It was also suggested that the bill could still undergo some changes before any discussion or voting over the final version takes place in the House.

Banks and Other Companies Could Still Issue Stablecoins

The bill also contemplates the issue of banks and other companies in the sector issuing stablecoins. Previously, currency projects submitted by bank issuers would have to be approved by federal regulators such as the OCC.

The legislative proposal establishes that the Fed must analyze and publish a set of guidelines for the decision-making processes around requests for the issuance of stablecoins by non-bank issuers.

In the bill, which the House Committee is expected to vote on next week, seeks to ensure than the important role of state regulators is preserved. In this way, non-bank stablecoin issuers that pass the test at the state level and register with the Fed within 180 days of approval could operate under the bill.

On the Flipside

The proposed legislation seeks to protect consumers from potential property damage or business bankruptcy.
The bill prohibits companies that deal in cryptocurrencies, including stablecoins, from mingling their assets with users’ money and private keys.

Following the guidelines from the latest White House directive on digital assets, the bill directs the Fed to study the potential impact of a digital dollar (CBDC), as well as its effects on the financial system, the banking sector, and the privacy of everyday Americans.

Why You Should Care

A bipartisan panel of lawmakers is likely to vote on the bill next week. However, Democratic Rep. Brad Sherman and a member of the committee told Bloomberg that a date has not yet been decided.

You can consult other articles related to the regulation of stablecoins and cryptocurrencies in the U.S. here:

Cryptocurrencies Fall After Biden’s Digital Dollar Announcement

The White House Considers Cryptocurrencies a Matter of National Security

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