House Committee Looking to Ban Algorithmic Stablecoins

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  • US legislators could vote to ban algorithmic stablecoins before the end of the year
  • A revised bill prohibits new Terra USD-like stablecoins from being created
  • The window for action is closing, with midterms on the horizon

The House Financial Services Committee is drafting legislation that would place a two-year ban on algorithmic stablecoins like TerraUSD as part of a wider bill on pegged currencies. According to Bloomberg, the latest version of the bill would make it illegal to issue or create new “endogenously collateralised stablecoins”, with the aim of ensuring that nothing like the Terra collapse ever happens again. Existing algorithmic stablecoins would be allowed to continue, but no new ones could be issued or launched.

“Endogenously Collateralised Stablecoin”

The draft legislation would mandate a study on algorithmic stablecoins from the Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Securities and Exchange Commission.

Under the terms of the bill, an endogenously collateralised stablecoins would be a stablecoin that is marketed as being able to be converted, redeemed or repurchased for a fixed amount of monetary value, and one that relies solely on the value of another digital asset from the same creator to maintain a fixed price.

Window for Swift Regulation is Closing

Bloomberg says that House Financial Services Committee Chairwoman Maxine Waters and Ranking Member Patrick McHenry have been working to reach an agreement on the stablecoin legislation, although it is not known who produced the latest draft with these important changes. Terms of the proposal could still change before a final version is released.

Talk of stablecoin regulation has been ongoing for some time, but time is in fact now regulators’ biggest enemy – the window for consideration is shrinking, with the upcoming midterm elections inevitably throwing a wrench into the process. In theory the panel could vote on the bill as early as next week, but crypto meme-king Brad Sherman told Bloomberg that a markup date hasn’t yet been decided.