US Congress wants to ban algorithmic stablecoins

US Congress wants to ban algorithmic stablecoins

Although the final version is still unclear, the stablecoin bill being prepared in the United States House of Representatives would place a two-year ban on algorithmic stablecoins, but also allow banking entities and non- banks to issue stablecoins.

Source: AdobeStock/wladimir1804

According to Bloomberg, the latest version of the bill would make it illegal to issue or create new “endogenously backed stablecoins”, adding that:

โ€œThe definition would come into effect for stablecoins presented as convertible, redeemable or redeemable for a fixed amount of monetary value, and which depend solely on the value of another digital asset from the same creator to maintain their fixed price.โ€

Not surprisingly, this latest development follows the unprecedented collapse of Terra, the protocol that powered its UST algorithmic stablecoin. In his case, the UST was supposed to maintain a 1 to 1 parity with the USD through an algorithm and trading Terra’s LUNA tokens.

In short, an algorithmic stablecoin is a cryptocurrency whose value is backed by another cryptocurrency – a system designed to maintain a stable price.

This latest bill provides for the carrying out of a study on Terra – or algorithmic – type tokens by the US treasury departmentin consultation with the Federal Reserve (EDF), theOffice of the Comptroller of the Currencythe Federal Deposit Insurance Corp. and the Securities and Exchange Commission (DRY).

In addition, the new bill would authorize banking and non-banking entities to issue stablecoins: for this, banks would need the approval of federal regulators, while the FED would be responsible for setting up a decision-making process. for requests from non-banking entities.

According to Bloomberg, citing people familiar with the matter, it is uncertain whether Patrick McHenry (Republican), a member of the House of Representatives Financial Services Committee, has endorsed the latter draft, although he has been working on stablecoin regulations with Maxine Waters (Democrat), Chair of the House Financial Services Committee.

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In addition to the stablecoin-related aspects, the legislation would require the FED to study the economic impact of a digital dollar, and it would prohibit companies from mixing customer funds โ€“ including stablecoins, private keys and cash. liquid – with the assets of the company.

It is important to note that the terms of the proposal could change before the final version is unveiled. However, the time to review the proposal is shrinking as the midterm elections approach. Therefore, the vote on the bill could take place as early as next week, people familiar with the matter said.

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