New algorithmic stablecoins would be banned from issuance for two years under a House stablecoin bill

    According to Bloomberg, legislation to govern stablecoins being written in the United States House of Representatives would impose a two-year prohibition on new algorithmic stablecoins akin to TerraUSD (UST). The most recent version of the legislation defines “endogenously collateralized stablecoins” and renders issuing or creating such stablecoins unlawful.

    The term would apply to publicly traded stablecoins that may be exchanged, redeemed, or repurchased for a defined amount of monetary value and are based purely on the value of another digital asset created by the same inventor.

    The measure allows stablecoin operators that are not collateralized by cash or highly liquid assets such as US Treasuries to be certified after modifying their business model for a two-year grace period.

    The measure would also prohibit mixed administration of client money and keys with those of the stablecoin issuer, implying that clients would be able to reclaim their assets more quickly if the stablecoin issuer went bankrupt.

    Aside from fixing Terra’s issues, the measure would allow banks and non-banks to create stablecoins, which would be governed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

    Concerns have also been raised over whether the term includes stablecoins such as Synthetix USD (SUSD). Synthetix USD is now collateralized by the same protocol’s native asset, the SNX token. BitUSD, backed by BitShares, is another algorithmic stablecoin with similar principles (BTS).

    Issuing stablecoins without the consent of these regulators might result in a five-year jail sentence and a $1 million fine. The measure would require the Fed to develop a procedure for making judgments on non-bank issuer applications.

    The draught legislation would allow the US Treasury Department to conduct research on UST-like stablecoins in collaboration with the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the US Securities and Exchange Commission, and House committees could vote on it as soon as next week.

    The Terra stablecoin TerraUSD (UST) lost its peg to the U.S. dollar in mid-June, trading at $0.006 instead of the $1 level it was meant to keep and losing tens of billions of dollars in value.

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