New reports suggest that a potential stablecoin regulatory framework could ban assets like TerraUSD for two years is in the works.
According to the media Bloombergbased on the copy of the bill, it would be illegal to issue or produce new “endogenously backed stablecoins”.
Months of deliberation over stablecoins
Earlier this year, the algorithmic stablecoin Terra USD (UST) broke away from the dollar. The debacle that threw the ecosystem’s burn-and-smash mechanism out of balance wiped out over $40 billion. Therefore, stablecoins advertised as having a constant exchange rate and entirely dependent on the value of another digital asset produced by the same developer to maintain their fixed price would fall under the criteria, making them illegal.
To further protect investors, in the event of bankruptcy, the legislation would also prohibit companies from combining customer funds, including stablecoins, private keys and cash, with company assets.
On September 23, US Treasury Secretary Janet L. Yellen is to chair a Meet of the Financial Stability Supervisory Board via video conference, and a decision on stablecoin legislation could come within a day. However, one of the most senior Democrats on the committee, Brad Sherman, told Bloomberg that a markup date has not yet been set.
The increased role of the Fed and other watchdogs
The legislation would require the Treasury to conduct a study of tokens similar to Terra in consultation with the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and the Securities and Exchange Commission, according to the report. Meanwhile, Maxine Waters (D), the chair of the House Financial Services Committee, and Patrick McHenry (R), the ranking member, tried to agree on stablecoin legislation. However, sources familiar with the talks say it is unclear whether the Republican member has approved the most recent version of the bill.
Last year in November, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) joined the President’s Financial Markets Task Force (PWG) to issue a study on stablecoins.
At the time, Treasury Secretary Yellen said, “Well-designed stablecoins with proper oversight [have] the potential to support advantageous payment options. But the lack of proper monitoring poses risks to users and the entire system.
A group effort
Since then, a bipartisan group of US lawmakers has been deliberating on new legislation to establish a regulatory framework for stablecoins. Especially when Tether, the largest stablecoin in the world, is increasingly under the radar for disclosing its reserves.
Last year’s proposal also included ensuring that issuers of stablecoins are insured depository institutions or operate like banks in this regard. The new legislation would allow banks and non-banks to produce stablecoins. However, Bloomberg reports that banks would need approval from federal authorities, such as the OCC, while the Fed would create a procedure to adjudicate requests from non-bank issuers.
Notably, Waters and McHenry’s bill should also consider a prominent role for the Federal Reserve.
In addition, the law would maintain the function of state regulators. The bill would allow non-bank stablecoin issuers that have received state approval to operate as long as they registered with the Fed within 180 days of that approval.
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