Draft US stablecoin bill suggests ban on algorithmic stablecoins

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The latest draft legislation bill of an upcoming US law on stablecoins has suggested a two-year ban on the issue of any new algorithmic stablecoin like TerraUSD, which depegged from the US dollar earlier this year. If the law comes into existence, it will apply to all stablecoins that do not maintain proper collateralization.

The bill is currently with the House Financial Services Committee, where leaders are negotiating the terms of the proposed law. The regulatory agencies, according to a report by Bloomberg, are conducting a study of “endogenously collateralized” tokens, with the aim of criminalizing the issue of such tokens.

The issuers of any existing algorithmic stablecoins that follow such a model will be given a grace period of two years to shift to collateralize their offerings differently. Other stablecoins that could face problems if the bill gets passed include USDD and BitUSD.

Prior versions of the bill, it required all issuers to maintain a 1:1 ratio of liquid reserves for all stablecoins that are in circulation and would also limit the types of assets that could back them.

The current stablecoin bill has been in the works for months, but the collapse of the Terra USD highlighted the need for stricter regulation.

The lawmakers are also examining whether the proposed law should apply to Synthetix USD (SUSD), which is collateralized with the protocol’s native token SNX.

Another important point in the bill includes allowing banks and other financial institutions to issue stablecoins while working within the existing regulations.

The bill could come up for a vote as soon as next week, according to the aforementioned Bloomberg report.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user’s own risk.

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