Draft US stablecoin law would ban new algo stablecoins for 2 years

Draft legislation in the United States House of Representatives would place a two-year ban on new algorithmic stablecoins such as TerraClassicUSD (USTC), which decoupled from the US dollar earlier this year, sparking widespread contagion of the crypto market.

The bill would criminalize the creation or issuance of new “endogenously collateralized stablecoins,” according to a current draft of the legislation obtained by Bloomberg.

However, the legislation includes a two-year grace period for existing algorithmic stablecoin providers to change their models and pledge their offerings differently.

The definition allegedly refers to stablecoins that rely on the value of another virtual asset from the same maker to maintain its price and are marketed with the ability to be converted, redeemed or otherwise exchanged for a fixed asset. price.

The bill increases concerns on whether stablecoins such as Synthetix USD (SUSD) would fall under the definition as it is currently backed by the native asset of the same protocol in the SNX token. Other algo stablecoins with a similar structure are BitUSD, which is backed by BitShares (BTS).

Those who are 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 with all things, dealing with those nuances is a lot harder than simply saying “crypto bad, rule it to death.”

— Jake Chervinsky (@jchervinsky) September 19, 2022

The draft bill also authorizes the US Treasury Department to conduct a study on algorithmic stablecoins and to consult with the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. .

The panel may be able to vote on the bill as early as next week, Bloomberg reports that people familiar with the legislative state, Democratic Representative Maxine Waters and Republican Patrick McHenry have been working to reach an agreement on the legislation, although it’s unknown if McHenry has approved the latter. provisional version.

Related: The crypto industry can rely on Cynthia Lummis to get the regulation right

Waters chairs the House Financial Services Committee, of which McHenry is a Ranking Member, and both heard testimony at a hearing Tuesday that US dollar-backed stablecoins could enhance national security because of the dollar’s perceived prestige and reliability.

TerraClassicUSD (USTC), formerly known as TerraUSD (UST) is an algorithmic stablecoin that lost its 1:1 peg with the US dollar in early May and hit a low of $0.006 in mid-June, resulting in tens of billions of dollars worth of losses.