Proposed stablecoin legislation in the US House of Representatives would apparently ban algorithmic stablecoins for two years while allowing banks and non-bank entities to create stablecoins, but its final form is still extremely uncertain.
According to Bloomberg, the latest iteration of the bill would make it illegal to produce or issue new “endogenously secured stablecoins,” saying:
Stablecoins that are advertised as having a constant monetary value and that depends entirely on the value of another digital asset created by the same inventor to maintain their fixed price would fall under these criteria.
Unsurprisingly, his latest innovation came after Terra, the technology behind his algorithmic stablecoin UST, experienced a catastrophic failure. In this case, UST was expected to use the algorithm and trade Terra’s LUNA coins to maintain a 1-to-1 peg with the USD.
An algorithmic stablecoin designed to maintain a stable price is a cryptocurrency whose value is backed by another crypto asset.
The US Department of the Treasury in cooperation with the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission would require Terra-like tokens (SEC) to conduct algorithmic research under this latest proposed legislation.
Additionally, the proposed measure would allow both banks and non-bank entities to issue stablecoins: banks would need permission from federal authorities, while the Federal Reserve would be ordered to establish a process for deciding whether to accept applications from non-bank entities.
When news of the proposed legislation first spread, the price of Terra LUNA dropped by several percent.
Although he has been working on regulating stablecoins with House Financial Services Committee Chairwoman Maxine Waters, it is unclear whether the ranking Republican on the Financial Services Committee, Patrick McHenry, has approved the latest proposal, according to Bloomberg, citing people familiar with the situation (Democrat).
The measure would prohibit corporations from tying consumer money, including stablecoins, private keys and cash, to company assets and order the Federal Reserve to examine the economic effects of the digital dollar.
The terms of the proposal could change before the public sees the final form, which is significant. However, as the midterm elections approach, there is less time to think about the proposal. Therefore, according to experts in the situation, the bill could be voted on as early as next week.
