A bill in the US House of Representatives would impose a two-year ban on new algorithmic stablecoins such as TerraClassicUSD (USTC) which withdrew from the US dollar earlier this year, causing widespread market contagion of cryptography.
The bill would criminalize the creation or issuance of new “endogenously backed stablecoins,” according to a current bill obtained by Bloomberg.
However, the legislation provides a two-year grace period for existing algorithmic stablecoin providers to change their models and guarantee their offering differently.
The definition would cover stablecoins that depend on the value of another virtual asset from the same creator to maintain its price and are marketed as having the ability to be converted, redeemed, or otherwise exchanged for a fixed price.
The bill goes up concerns on whether stablecoins such as Synthetix USD (SUSD) would catch the definition, as they are currently backed by the native 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 technology, etc.
But as with all things, engaging in these nuances is much harder than just saying “crypto bad, regulate it to death.”
—Jake Chervinsky (@jchervinsky) September 19, 2022
The bill also directs the US Treasury to undertake a study of algorithmic stablecoins and consult with the Federal Reserve, the Security and Exchange Commissionthe Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
The panel may vote on the bill as early as next week, Bloomberg reports that people familiar with the state of the legislation, Democratic Representative Maxine Waters and Republican Patrick McHenry have been working to reach an agreement on the legislation, although it is unclear whether McHenry approved the latest Draft.
Waters chairs the House Financial Services Committee, of which McHenry is a ranking member, both heard evidence at a hearing on Tuesday that stablecoins backed by the US dollar could improve national security due to the perceived prestige and reliability of the dollar.
TerraClassicUSD (USTC), formerly known as TerraUSD (UST) is an algorithmic stablecoin that lost its 1:1 peg with the US dollar early May, hitting an all-time low of $0.006 in mid-June, resulting in tens of billions of dollars in losses.