A draft bill in the US House of Representatives could ban new algorithmic stablecoins, such as TerraUSD Classic (USTC), which de-pegged from the US dollar earlier this year, for two years. causing widespread contagion in the cryptocurrency 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.
Nevertheless, The legislation includes a two-year grace period for existing algorithmic stablecoin providers to change their models and collateralize their offerings differently.
Apparently, the definition would encompass stablecoins that rely on the value of another virtual asset from the same creator to maintain their price and are traded as having the ability to be converted, repurchased, or otherwise redeemed for a fixed price.
the bill poses the concern of whether stablecoins such as Synthetix USD (SUSD) would fall under the definition, as it is currently collateralized with the native asset of the same protocol in the SNX token. Other algorithmic stablecoins with a similar structure include BitUSDwhich is backed by BitShares (BTS).
Those well-educated on crypto understand that Terra doesn’t represent all stablecoins, Celsius wasn’t DeFi, 3AC had nothing to do with the technology, etc.
But as in all things, it’s a lot harder to engage with those nuances than to simply say “crypto bad, regulate it to death.”
— Jake Chervinsky (@jchervinsky) September 19, 2022
Those well educated in the cryptocurrency space understand that Terra does not represent all stablecoins, Celsius was not DeFi, 3AC had nothing to do with technology, etc. But as with all things, it’s much harder to commit to those nuances than to simply say “cryptocurrencies are bad, regulate them to death.”
The bill also requires the US Treasury to conduct a study on 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.
The panel may be able to vote on the bill next week, as Bloomberg reports that people familiar with the legislation say Democratic Rep. Maxine Waters and Republican Rep. Patrick McHenry have been working to reach an agreement on the legislation, though it is unknown if McHenry signed off on the latest draft.
Waters chairs the House Financial Services Committee, of which McHenry is a senior member, and both heard testimony Tuesday at a hearing that dollar-backed stablecoins could enhance national security due to 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, hitting an all-time low of $0.006 in mid-June. resulting in losses worth tens of billions of dollars.
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