Bloomberg News reports that legislation regulating stablecoins that are undergoing drafting in the House might ban similar coins to TerraUSD for two years. It may be recalled that TerraUSD is the algorithmic stablecoin that was found to collapse this year.
As per the recent version of the bill, issuing or creating new collateralized stablecoins that are endogenous would be illegal, per a copy that Bloomberg obtained. Those stablecoins that are capable of being converted, repurchased, and redeemed for a monetary value of a fixed amount will have the definition kicked in. Also, one solely relies on the value of the other digital assets to maintain a fixed price from the same creator.
TerraUSD, also known as UST, was created to maintain a 1-to-1 peg to the US dollar through an algorithm and by trading in a sister token known as Luna. When UST crashed, the same experiment failed miserably in May, which led to losses worth billions of dollars, forcing the policymakers to take an interest in the stablecoins.
The draft legislation will mandate the study related to Terra-like tokens from the Treasury, which will be in consultation with the Federal Reserve, Federal Deposit Insurance Corp, Securities and Exchange Commission, and Office of the Comptroller.
Maxine Waters, the chairwoman of the House Financial Services Committee, and Patrick McHenry Ranking Member, are working to reach an agreement on the stablecoin legislation. However, the individuals familiar with the issue stated that it is not clear if McHenry, a Republican, will approve of the draft. Before a final version is released, the terms of the proposal might still change. However, the offices of McHenry and Waters failed to comment.
Aside from addressing the events that unfolded with Terra, the banks and nonbanks would be allowed to issue stablecoins. The bank approvers would also seek approval from their federal regulators, which include OCC. The legislation would direct the Fed to establish the process to make decisions on the applications received from nonbank issuers.
It is quite likely that the panel will be voting on the bill as early as next week, as stated by the people familiar with the discussions. However, Brad Sherman, one of the senior-most Democrats, revealed to Bloomberg on Tuesday that they have not yet decided upon a markup date.
For considering the bill, the panel’s window before the year wrapping up, with the forthcoming midterm elections that might throw a wrench in the process.
