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- The U.S. plans to regulate stablecoins.
- Presented a draft on April 14, scheduled for hearing on April 19.
Stablecoins are becoming increasingly popular as they provide a safe place from the volatility of cryptocurrencies. Lately, there’s been a buzz around crypto regulations; U.S. lawmakers have drafted a bill regarding stablecoin regulations published on April 14. The stablecoin bill requires issuers to have enough backing, and wrongdoers will get 5 years behind bars.
The Stablecoin Draft
A stablecoin draft titled “Understanding Stablecoin’s Role in Payments and the Need for Legislation” was introduced by the U.S. House Financial Services Committee before April 19 hearing. On this date, a subcommittee on digital assets, financial technology, and inclusion will be meeting to discuss the draft.
The draft is 73 pages long, and the discussion is supposed to touch on the requirement and regulations regarding stablecoins. There will also be discussions to avoid the recurrence of the multi-billion collapse of TerraUST, which eventually led to the collapse of the Terra Ecosystem.
The bill is supposed to make it mandatory for stablecoin issuers to maintain at least 1:1 backing reserves. The proposed backing could be in the form of U.S. currency and Central Bank reserve deposits. It could also include treasury bills or repurchase agreements backed by treasury bills with a maturity period of about 90 days or less.
USDT, USDC, and BUSD will have to follow this model.
The testifying team for the draft includes New York State Department of Financial Services Superintendent Adrienne Harris, Blockchain Association’s Chief Policy Officer Jack Chervinsky, and Circle’s Head of Global Policy, Dante Disparte. The stability of the U.S. financial system is the utmost priority in the bill. They are asking for community approval before appointing stablecoin regulators.
If the bill is passed, the Federal Reserve’s Board of Governors would then be entitled to oversee the issuance of stablecoins. Moreover, the bill hints that non-authorized issuers would be inviting a fine of $1 Million or a jail time of up to 5 years.
Could This Be the End of the Algorithmic Stablecoin Era?
The bill proposes a two-year moratorium on issuing “endogenously collateralized stablecoins.” Such stablecoins do not currently exist, but there is a possibility. They refer to any digital asset “in which its originator has represented will be converted, redeemed, or repurchased for a fixed amount of monetary value.”
Moreover, it “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.” Other assets do not back the recently popular stablecoins like USDT, USDC, and UST, and the algorithmic dependence of TerraUST caused de-pegging and eventual collapse.
The bill is also supposed to direct the Federal board and the Financial Crimes Enforcement Network to research the possible impact of U.S. CBDC on America’s monetary policy tools, financial and banking sector, and the ecosystem for cross-border payments.
This hearing on April 19 will be followed by another hearing in which the House Financial Services Committee will probe the Securities and Exchange Commission’s Chair, Gary Gensler, regarding developments on rulemaking for the crypto industry.
Disclaimer
The views and opinions stated by the author, or any people named in this article, are for informational purposes only, and they do not establish financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
