Leaders of the House Financial Services Committee continue to negotiate the terms of a proposed bill to regulate cryptocurrency, even as the window to act draws increasingly narrow heading into the midterm elections.
According to Bloomberg, the latest draft legislation would ban algorithmic stablecoins like TerraUSD (UST) for two years, while regulatory agencies conduct a study of "endogenously collateralized" tokens.
"Endogenously" means something produced or synthesized within the organism or system. Before TerraUSD and Luna imploded in May, its creators relied on an algorithm to mint or burn Luna to keep the value of TerraUSD stable at $1.
Over $40 billion in value evaporated within days, and the collapse has become Exhibit A in the crypto critic's playbook, and has intensified the interest of lawmakers and regulators.
After the Collapse of Terra's UST, What's Next for Algorithmic Stablecoins?
On Monday, the Federal Reserve released a report that identified three assets with funding risks: certain money market funds, some bond funds, and stablecoins. The latter sector, it said, "remains exposed to liquidity risks" and "vulnerable to runs." That same day, Terra's UST stablecoin lost over 30% of its value during a bank run hastened by low liquidity on the network's primary lending protocol, Anchor. Two days later, the stablecoin has drifted even further from its peg, while Terra's nati...
Prior versions of the bill required stablecoin issuers to maintain 1:1 liquid reserves for all stablecoins in circulation and would also limit the types of assets that could back them.
The latest draft—which Bloomberg notes is currently sitting with committee chair Rep. Maxine Waters (D-CA), and may need to be reviewed by ranking member Rep. Patrick McHenry (R-NC)—goes even further.
The stablecoin bill now provides a path for banks and other financial institutions to issue stablecoins, working with their existing network of regulators. But that network would now also include regulators at the state level, providing state-approved stablecoin issuers a 180-day fast track to a federal green light.
The business news service says the committee could bring the bill up for a vote as soon as next week.
US Stablecoin Bill Pushed to After August Recess
Bipartisan legislation to establish a regulatory regime for stablecoins in the U.S. has been pushed back to after the August recess. In a statement, Rep. Maxine Waters (D-CA) said, "Although the Ranking Member, Secretary Yellen and I have made considerable progress towards an agreement on the legislation, we are unfortunately not there yet, and will therefore continue our negotiations over the August recess." She added that, "It’s critical that we continue moving the ball forward on this so we c...
The stablecoin bill has been in the works for months, and has been delayed in the past, in part over concerns raised by Treasury Secretary Janet Yellen. Yellen has repeatedly cited the TerraUSD collapse when calling for more regulation of the crypto space.
Similarly, Rep. Waters highlighted the risks of stablecoins earlier this year, saying, "investigations have shown that many of these so-called stablecoins are not, in fact, backed fully by reserve assets," and that a lack of investor protections could even "threaten U.S. financial stability."
