Stablecoins Regulation Looms Large in Bill Before US Congress – Algo Versions Face Ban

The proposed stablecoin legislation in the US House of Representatives would apparently prohibit algorithmic stablecoins for two years while permitting banks and nonbanks to create stablecoins, however its ultimate form is still extremely uncertain.

The newest iteration of the bill, according to Bloomberg, would make it unlawful to produce or issue new “endogenously collateralized stablecoins,” adding that:

Stablecoins that are advertised as having a constant monetary value and that entirely depend on the value of another digital asset created by the same inventor to maintain their fixed price would fall under the criteria.

It is hardly surprising that his most recent innovation came after Terra, a technology that underpinned its algorithmic stablecoin UST, experienced a catastrophic failure. In this instance, UST was expected to use an algorithm and trade in Terra’s LUNA coins to preserve a 1-to-1 peg with USD.

An algorithmic stablecoin, which is intended to maintain a stable price, is a cryptocurrency whose value is supported by another cryptoasset.

The US Treasury Department, in collaboration with the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Securities and Exchange Commission, would be required by this most recent draught of legislation to conduct research on algorithmic tokens similar to Terra (SEC).

Additionally, the proposed measure would allow both banks and nonbanks to issue stablecoins: banks would need permission from federal authorities, while the Federal Reserve would be ordered to establish a procedure for deciding whether to accept nonbanks’ applications.

When word of the proposed legislation first spread, the price of Terra LUNA decreased by a number of percent.

Although he has been working on a stablecoin regulation with House Financial Services Committee Chairwoman Maxine Waters, it is unclear if Republican House Financial Services Committee Ranking Member Patrick McHenry has approved this most recent draught, according to Bloomberg, citing people with knowledge of the situation (a Democrat).

The measure would forbid corporations from fusing consumer monies, including stablecoins, private keys, and cash, with company assets and direct the Federal Reserve to research the economic effects of a digital dollar.

The proposal’s terms could alter before the public sees the final form, which is significant. However, as the midterm elections draw near, there is less time to think about the suggestion. Therefore, according to those with knowledge of the situation, the bill’s vote might take place as early as next week.

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