Bloomberg’s recent report indicated that the coming law would prohibit algorithmic stablecoins like TerraUSD, which catalyzed a broad market crush amidst its May collapse. The United States House currently draft the mentioned bill.
Monitoring the Stablecoin Sector
The bill would ban the issuance or development of new ‘endogenously’ collateralized stablecoins. Such stablecoins remained tied to related crypto from the same developer to retain a steady price. The creator sells the token with a narrative that users can convert, redeem or transfer for a fixed cost.
Violation will see the issuer given two years to re-mold its operating model & collateralize the tokens differently. Remember, the May 2022 crypto market crash emerged after the fall of TerraUSD, a stablecoin tied to its native crypto, Luna.
The exposure to the stablecoin saw the Singapore-based hedge fund, 3AC, going bankrupt. The resulting bloodbath impacted other players in the marketplace. Multiple crypto exchanges like Voyager, Vauld, and Zipmex also fell during this timeframe.
Also, the draft bill commands the Treasury, the Securities & Exchange Commission, the Federal Reserve, the OCC (Office of Comptroller of Currency), and the Fed Deposit Insurance Corporation to research stablecoins like TerraUSD.
Also, the bill opens gates for banks & non-banks to issue stablecoins, adhering to due process. While banks seek authorization from the Fed regulatory agencies like OCC, non-banks would follow a Fed-established process.
Moreover, the law would restrict financial institutions from mixing client assets like stablecoins, private keys, and cash with their company assets.
Cryptocurrency Issues Becoming Critical
This month’s report by KPMG indicated that corporates interested in low-risk investments will likely show heightened interest in stablecoins – a ‘less volatile asset class.’ The report suggested that the panel might vote on the crypto bull by next week, though there’s no official date so far.
Considering the coming midterm elections, it remains imperative that members focus on crucial economic facets such as crypto with urgency. Nevertheless, the final bill might still vary as the discussions are underway.
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