The House Financial Services Committee continues to negotiate terms for a proposed bill that regulates cryptocurrency. This is despite the fact that the window of opportunity to act is getting narrower heading into the midterm elections.
Bloomberg states that the most recent draft legislation would prohibit algorithmic stablecoins such as TerraUSD (UST), for two years while regulators conduct a study on “endogenously collateralized tokens”.
Algorithms pave the way for stablecoins
Endogenously refers to something that is produced or synthesized in an organism or system. In order to maintain the $1 value of TerraUSD, before TerraUSD and Luna imploded in April, its creators used an algorithm to mint or fire Luna.
Within days, more than $40 billion of value disappeared. This has made the collapse Exhibit A in crypto critics’ playbook and intensified the interest in lawmakers and regulators.
The bill’s predecessors required stablecoin issuers maintain liquid reserves of 1:1 for all stablecoins currently in circulation. They also restricted the assets that could be used to back them.
The latest draft, Bloomberg notes, is currently being reviewed by Rep. Maxine Wassers (D-CA).
Legislation allows banks to take part in stablecoins
Stablecoin legislation now allows banks and other financial institutions to issue stablecoins in conjunction with their existing regulator network. This network would also include regulators at state level. State-approved stablecoin issues will now have a 180-day fast track for a federal green signal.
According to the business news service, the committee could put the bill up for vote as soon next week.
The stablecoin bill has existed for many months and has been delayed in past due to concerns raised by Treasury Secretary Janet Yellen. Yellen repeatedly cited TerraUSD’s collapse as a reason for calling for greater regulation in the crypto space.
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