Newest US Crypto Law Draft Would Temporarily Ban Terra- Similar to Stablecoins

TheMorningCrypto Desk
TheMorningCrypto Desk

Updated on January 09, 2023 12:50 PM

Published on September 22, 2022 10:27 AM

Algorithm stablecoins would be put on hold until federal agencies studied them for two years.According to reports, "endogenously collateralized stablecoins," which rely on the value of an attached cryptocurrency from the same inventor to maintain a stable price, will be covered in the bill.

Newest US Crypto Law Draft Would Temporarily Ban Terra- Similar to Stablecoins

"Endogenously" refers to something created or produced by the organism or system itself. Prior to its collapse in May, TerraUSD's developers used an algorithm to mint or burn Luna in order to maintain the value of TerraUSD at $1.

The crash, which saw more than $40 billion in value disappear in a matter of days, increased interest among lawmakers and regulators and served as Exhibit A in the “crypto critics” playbook.

The most recent proposal, which is presently being considered by ranking member Rep. Patrick McHenry (R-NC) and committee chair Rep. Maxine Waters (D-CA), goes much farther.

  • An algorithmic stablecoin called TerraUSD, sometimes known as UST, was intended to be tied to the US dollar. However, it lost the peg to the dollar, crashed, and shocked the cryptocurrency world.

  • The terraUSD fiasco, according to Reeve Collins, co-founder of BLOCKv and tether, another stablecoin, will "probably be the end" of so-called algorithmic stablecoins.

  • The cryptocurrency sector also issued a warning that stablecoin legislation is likely to occur as governments around the world assess the hazards in the market.

With the help of their current network of regulators, banks and other financial institutions can now issue stablecoins thanks to the stablecoin bill. However, that network would now also include state regulators, giving stablecoin issuers with state approval a 180-day fast route to a federal nod.

Similar to this, Rep. Waters highlighted the dangers of stablecoins earlier this year, stating that "investigations have shown that many of these so-called stablecoins are not, in fact, backed fully by reserve assets" and that a lack of investor protections could even "threaten U.S. financial stability."

Draft legislation in the United States House of Representatives would ban the creation or issuance of new "endogenously collateralized stablecoins", according to a current draft of the legislation obtained by Bloomberg. The bill includes a grace period of two-years for existing algorithmic stablecoin providers to change their models and collateralize their offering differently.

The bill includes stablecoins which depend on the value of another virtual asset from the same creator to maintain its price. Concerns have been raised over whether Synthetix USD would be captured by the definition, as it is currently collateralized with the native asset of the same protocol in the SNX token.


Along with doing research on algorithmic stablecoins and consulting with the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, the U.S. The Treasury is required to comply with the drought legislation.

According to those familiar with the proposal, the panel might vote on the bill as soon as next week. Republican Patrick McHenry and Democratic Representative Maxine Waters have reportedly been negotiating on the bill, though it's unclear whether McHenry has endorsed the most recent drought.

At a hearing on Tuesday, which Waters chairs and McHenry is a ranking member of, witnesses said that because of the perceived prestige and dependability of the dollar, stablecoins backed by the U.S. dollar might improve national security.

An algorithmic stablecoin called TerraClassicUSD (USTC), originally known as TerraUSD (UST), lost its 1:1 peg with the U.S. dollar in early May, reaching an all-time low of $0.006 in mid-June, resulting in losses amounting to tens of billions of dollars.



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