Draft legislation in the US House of Representatives would impose a two-year ban on new algorithmic stablecoins such as TerraUSD Classic (USTC), which was delinked from the US dollar earlier this year, causing widespread contagion in the crypto market.
The bill would criminalize the creation or issuance of new “endogenously secured stablecoins,” according to a current draft of the legislation obtained by Bloomberg.
However, the legislation includes a two-year deadline for existing algorithmic stablecoin providers to change their models and provide security for their offerings in a different way.
The definition will reportedly cover stablecoins that rely on the value of another virtual asset from the same creator to maintain their price and are marketed as having the ability to be converted, repurchased or otherwise redeemed at a fixed price.
The bill travels concerns whether stablecoins such as Synthetix USD (SUSD) will fall under the definition, as they are currently secured with the original asset of the same protocol in the SNX token. Other algo-stablecoins with a similar structure include BitUSD which is backed by BitShares (BTS).
Those well educated in crypto understand that Terra does not represent all stablecoins, Celsius was not DeFi, 3AC had nothing to do with the technology, etc.
But as in all things, engaging with these nuances is much more difficult than simply saying “crypto bad, regulate it to death.”
— Jake Chervinsky (@jchervinsky) 19 September 2022
The bill also mandates the US Treasury Department to conduct a study of algorithmic stablecoins and consult with the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
It’s possible the panel could vote on the bill as early as next week, as Bloomberg reports that people familiar with the legislation state Democratic Rep. Maxine Waters and Republican Patrick McHenry have been working to reach an agreement on the legislation, though it’s unknown if McHenry approved the bill. final draft.
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Waters chairs the House Financial Services Committee, of which McHenry is a ranking member, both heard testimony at a hearing Tuesday that USD-backed stablecoins could increase national security because of the perceived prestige and reliability of the dollar.
USTC, formerly known as TerraUSD (UST) is an algorithmic stablecoin that lost its 1:1 peg to the USD in early May, reaching an all-time low of $0.006 in mid-June, resulting in tens of billions of dollars in losses .