US Proposes a 2-Year Ban on Algorithm Stablecoins

September 22, 2022

Reading Time: 2 minutes

The Terra collapse that led to investors losing over $40 billion has drawn the attention of investors, regulators as well as lawmakers to algorithm stablecoins, and now a bill to ban Terra-like stablecoins has been proposed by the US House of Representatives.

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US May Ban Terra-like Stablecoins

The United States House of Representatives has drafted legislation that will see Terra-like stablecoins banned in the US for the next 2 years and regulatory agencies will be required to carry out a study of “endogenously collateralized” tokens.

According to the draft revealed by Bloomberg, it will be a criminal offense to create or issue new “endogenously collateralized stablecoins” in the United States.

Furthermore, the draft includes a provision of 2 years for the existing stablecoin issuers to amend their models and collateralize their offerings differently.

The word endogenous means something synthesized within the system, meanwhile, stablecoins like TerraUSD require their issuers to mint or burn Luna to stabilize the value of UST, creating stablecoins with similar backing will henceforth be prohibited in the US.

The earlier version of the bill required stablecoins creators to maintain a 1:1 liquid reserve for every stablecoin in the crypto space and would also limit the types of assets that could back them.

The latest draft—which Bloomberg notes is currently sitting with committee chair Rep. Maxine Waters (D-CA), and may need to be reviewed by ranking member Rep. Patrick McHenry (R-NC)—goes even further.

The bill also contains provisions that will let financial institutions issue stablecoins by working with the existing regulators, networks, including state regulators.

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