The draft legislation at the United States House of Representatives would prohibit new algorithmic stablecoins like TerraClassicUSD (USTC), which was de-pegged from US dollars earlier this year, causing widespread crypto market contagion.
According to Bloomberg, a draft of the bill has been obtained. The bill would make it illegal to create or issue new “endogenously collateralized” stablecoins.
The legislation allows existing algorithmic stabilizecoin providers to modify their models and collateralize differently within a two-year grace period.
According to reports, the definition includes stablecoins that depend on another virtual asset from the creator to maintain their price. It is also marketed as being able to be converted or repurchased for a fixed price.
Concerns have been raised about whether stablecoins like Synthetix USD would be included in the bill. It is currently collateralized by the native asset of the same protocol in SNX token. BitUSD, which is backed in BitShares (BTS), are other algo-stablecoins that have a similar structure.
Cryptologists who are well-versed in crypto know that Terra does not represent all stablecoins. Celsius was not DeFi. 3AC had nothing whatsoever to do with the technology. As with all things, it is much more difficult to understand those nuances than just saying “crypto bad, regulate this to death.”
— Jake Chervinsky (@jchervinsky) September 19, 2022
The U.S. Treasury is also required to conduct a study of algorithmic stablecoins and consult the Federal Reserve, the Securities and Exchange Commission and the Federal Deposit Insurance Corporation.
Bloomberg reports that the panel may vote on the bill as soon as next week. People familiar with the legislation say Maxine Waters, Democratic Representative, and Patrick McHenry, Republican, have been trying to come to an agreement. However, it is not known if McHenry has approved the most recent draft.
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Waters chairs the House Financial Services Committee. McHenry is a Ranking member.
TerraClassicUSD, formerly TerraUSD (USTC), is an algorithmic stablecoin that lost its 1:1 peg to the U.S. Dollar in May. It hit an all-time low $0.006 in June which led to losses in the tens of millions of dollars.