Next week, the “House Financial Services” committee in the US will vote on the law regulating stablecoins. According to the details, the bill proposes a full two-year ban on algorithmic stablecoins such as altcoin TerraUSD. Here are the details…
Authorities may impose a 2-year ban on some altcoin projects
Leaders of the House of Representatives Financial Services Committee, the process of action is narrowing further towards the midterm elections. However, authorities continue to negotiate the terms of a proposed bill to regulate the cryptocurrency. According to Bloomberg, the latest bill bans algorithmic stablecoins like TerraUSD (UST) for two years. On the other hand, regulators are conducting a study on “internally collateralized” tokens.
“endogenously” means something produced or synthesized within the organism or system. Before TerraUSD and Luna exploded in May, its creators relied on an algorithm to mint or burn Luna to keep TerraUSD’s value stable at $1. As we reported as Kriptokoin.com, over $40 billion in value evaporated within days. The crash has become the number one example of crypto critics. It also intensified the interest of legislators and regulators.
The Fed and the US Treasury Department can also do a study on stablecoins
Previous versions of the bill required stablecoin issuers to hold 1:1 liquid reserves for all stablecoins in circulation. It would also limit the types of assets that could support the coins. Draft legislation may also require the US Treasury and US Fed to conduct a study on stablecoins like Terra. Other agencies, such as the SEC, the Office of the Currency Controller, and the Federal Deposit Insurance Corporation, will also be part of it.
In addition to addressing concerns about stablecoins like Terra, the bill will also allow banks and non-banks to issue stablecoins. But bankers will also have to get approval from regulators like the OCC. For non-bankers, the Fed will set up a decision-making process. The stablecoin law has been worked on for months. It has been delayed in the past, in part due to concerns voiced by US Treasury Secretary Janet Yellen.
Criticism of algorithmic stablecoins abounds
Yellen has repeatedly voiced the TerraUSD collapse while calling for further regulation of the crypto space. Similarly, Representative Waters highlighted the risks of stablecoins earlier this year. “Research has shown that many of these so-called stablecoins are not actually fully backed by reserve assets,” he said. In this case, he said, there may even be a lack of investor protection. Such stablecoins, he says, “threaten US financial stability.” You can see some examples of these algorithmic stablecoins in the list below:
- Dai (DAI)
- TerraUSD (UST)
- Magic Internet Money (MIM)
- Frax (FRAX)
- Neutrino USD (USDN)
- USDD
- Ampleforth (AMPL)
- USDX
- Parallel (PAR)
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