New reports suggest that a potential stablecoin regulatory framework could ban assets like TerraUSD for two years and is in the works.
According to the media Bloomberg, it would be unlawful to issue or produce new “endogenously collateralized stablecoins” based on the copy of the draft law.
Months of thinking about stablecoins
Earlier this year, algorithmic stablecoin Terra USD (UST) was de-pegged from the dollar. The debacle that unbalanced the ecosystem’s combustion and coin mechanism wiped out over $40 billion. Therefore, stablecoins advertised as having a constant exchange rate and depending entirely on the value of another digital asset produced by the same developer to maintain their fixed price would fall under the criteria and make them illegal.
To further protect investors in the event of bankruptcy, the legislation would also reportedly prohibit companies from combining customer funds, including stablecoins, private keys and cash, with company assets.
On September 23, US Treasury Secretary Janet L. Yellen will chair a meeting of the Financial Stability Oversight Council via video conference, and a decision on stablecoin legislation could be made that day. However, one of the committee’s senior Democrats, Brad Sherman, told Bloomberg that a markup date has not yet been set.
The increasing role of the Fed and other watchdogs
The legislation would require the Treasury Department, in consultation with the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission to conduct a study on tokens similar to Terra, according to the report. Meanwhile, Maxine Waters (D), the chair of the House Financial Services Committee, and Patrick McHenry (R), the senior member, have been attempting to reach agreement on stablecoin legislation. But sources familiar with the talks say it’s unclear whether the Republican member approved the latest version of the bill.
Last November, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) joined the President’s Working Group on Financial Markets (PWG) and released a study on stablecoins.
At the time, Treasury Secretary Yellen argued: “Stablecoins that are well designed and subject to proper oversight [have] the potential to support advantageous payment options. But the lack of proper oversight poses risks for users and the broader system.”
A group effort
Since then, a bipartisan group of U.S. lawmakers has been deliberating on new legislation aimed at creating a regulatory framework for stablecoins. Especially as Tether, the world’s largest stablecoin, has increasingly fallen under the radar for disclosing its reserves.
Last year’s proposal also included ensuring that stablecoin issuers are insured depositories or function like banks in that regard. The new legislation will reportedly allow banks and non-banks to produce stablecoins. However, Bloomberg reports that banks would need approval from federal agencies like the OCC, while the Fed would create a process to decide applications from non-bank issuers.
Notably, the Waters and McHenry bill is also expected to provide a prominent role for the Federal Reserve.
In addition, the law would uphold the role of state regulators. The bill would allow non-bank issuers of stablecoins that have received government approval to operate as long as they register with the Fed within 180 days of that approval.
Disclaimer
All information contained on our website is published to the best of our knowledge and belief and for general information purposes only. Any actions taken by the reader based on the information contained on our website are entirely at your own risk.
Comments are closed.