Draft US Bill Seeks To Ban Algorithmic Stablecoins For 2 Years

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The US House of Representatives drafted a bill that intends to place a temporary 2-year ban on algorithmic stablecoins such as TerraUSD.

The draft bill came as a response to TerraUSD’s crash in May. The collapse of TerraUSD led to over $60B being wiped off within days and caused the onset of the crypto winter.

According to the latest draft legislation, the definition of algorithmic stablecoins applies to cryptocurrencies that depend on another token from the same creator to maintain their value and can be redeemed at a fixed price. This would assist in the easy recovery of customers’ assets in case of a market crash. 

The draft bill aims to criminalize the creation and issuance of algorithmic stablecoins. The penalty for issuing an algorithmic stablecoin includes a $1M fine and up to five years in prison.

It also requires nonbank stablecoins to register with the Federal Reserve within three months of receiving approval from state regulators.

Moreover, it mandates regulatory firms to conduct a study on “endogenously collateralized stablecoins” during this period. These include tokens such as BitUSD and Synthetix USD.

The bill provides a two-year grace period for existing algorithmic stablecoins to change their means of collateralization.

The draft legislation is still up for negotiation, and Congressman Patrick McHenry has yet to sign it. The House committee may begin voting on it as early as next week.

Written by
Ayush Pande

The US House of Representatives drafted a bill that intends to place a temporary 2-year ban on algorithmic stablecoins such as TerraUSD.

The draft bill came as a response to TerraUSD’s crash in May. The collapse of TerraUSD led to over $60B being wiped off within days and caused the onset of the crypto winter.

According to the latest draft legislation, the definition of algorithmic stablecoins applies to cryptocurrencies that depend on another token from the same creator to maintain their value and can be redeemed at a fixed price. This would assist in the easy recovery of customers’ assets in case of a market crash. 

The draft bill aims to criminalize the creation and issuance of algorithmic stablecoins. The penalty for issuing an algorithmic stablecoin includes a $1M fine and up to five years in prison.

It also requires nonbank stablecoins to register with the Federal Reserve within three months of receiving approval from state regulators.

Moreover, it mandates regulatory firms to conduct a study on “endogenously collateralized stablecoins” during this period. These include tokens such as BitUSD and Synthetix USD.

The bill provides a two-year grace period for existing algorithmic stablecoins to change their means of collateralization.

The draft legislation is still up for negotiation, and Congressman Patrick McHenry has yet to sign it. The House committee may begin voting on it as early as next week.

Written by
Ayush Pande