By Alicia Maher
A draft legislation for stablecoins in the US House of Rep could place a ban of 2 years on recent algorithmic stablecoins like TerraClassicUSD. Recall the stablecoin de-pegged earlier in May, causing a ripple effect across the crypto market.
Stablecoin Bill To Criminalize Issuance Of New Stablecoins
As stated by Bloomberg, the recent draft of the bill does not sound good for the crypto community. The legislation would criminalize the issuance or creation of new private collateralized stablecoins.
Meanwhile, the legislation grants existing issuers of algorithmic stablecoins a time frame of two years. During this period, they must modify their models and collateralize their stablecoin offerings.
According to reports, the definition of the term would include stablecoins, which are digital currencies whose price is kept stable by tracking the value of another digital asset. Another part of the definition is that stablecoins are promoted as having the ability to be repurchased, converted, or redeemed for a predetermined price.
Additionally, the legislation raised concern if the definition will capture stablecoins like Synthetix USD. This is because the stablecoin is collateralized by the system’s native asset, the SNX token.
Other algorithmic stablecoins also share a similar structure with the Synthetix USD. An example is the BitUSD which is collateralized by BitShares (BTS).
Furthermore, the draft orders the United States Treasury Department to study algorithmic stablecoins. Also, the Treasury Department will meet with other government agencies to deliberate on the matter.
These agencies include the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Office of the Comptroller of Currency, and the Federal Reserve.
Panel Might Vote On The Legislation Next Week
According to Bloomberg, those familiar with the news said the panel might vote on the legislation next week. Also, Patrick McHenry (Republican) and Maxine Waters (Democrat) have reportedly been working on the bill.
However, they are yet to reach an agreement on the measure. Also, it is uncertain if McHenry endorsed the recent draft.
The TerraUSD (UST), presently known as TerraClassicUSD (USTC), is an algorithmic stablecoin released by the Terra ecosystem. Earlier in May, the stablecoin lost its anchor to the USD and fell below $1.
In the middle of June, the stablecoin hit its lowest point of $0.006. This caused several investors and crypto firms that invested in the project to lose billions of dollars.
The news of the collapse drew negative reactions from lawmakers and regulators across the globe. As a result, several nations began to work on regulations for stablecoins and other cryptocurrencies.
However, most of these regulations may not take effect until 2023. This is because they are still in the preliminary stages.