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House Stablecoin Bill Would Put Two Year Ban On Terra-Like Coins

Legislation to regulate stablecoins would place a two-year ban on coins similar to TerraUSD.

Legislation to regulate stablecoins being drafted in the House would place a two-year ban on coins similar to TerraUSD, the algorithmic stablecoin that collapsed earlier this year.

Under the latest draft of the bill, it would be illegal to issue or create new “endogenously collateralized stablecoins,” according to a copy obtained by Bloomberg. The definition would apply to stablecoins that are marketed as convertible, redeemable or redeemable for a fixed amount of monetary value, and that rely solely on the value of another digital asset from the same maker to achieve their fixed price. preserve.

TerraUSD, also known as UST, is designed to maintain a 1-to-1 peg to the US dollar through an algorithm and trading a sister token called Luna. That experiment backfired spectacularly when UST crashed in May, resulting in billions of dollars in losses and prompting policymakers to show renewed interest in stablecoins.

The draft legislation would mandate an investigation into Treasury Terra-like tokens 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.

House Financial Services Committee chair Maxine Waters and Ranking member Patrick McHenry have been working on an agreement on the stablecoin legislation, although people familiar with the discussions said it’s unclear whether McHenry, a Republican, has the latest draft. approved. The terms of the proposal may change before a final version is released.

The McHenry and Waters offices did not respond to a request for comment.

In addition to addressing what happened to Terra, the bill would allow banks and non-banks to issue stablecoins. Bank issuers would seek approval from their typical federal regulators, such as the OCC. The legislation would instruct the Fed to set up a process for making decisions about applications from non-bank issuers.

The bill would also retain a role for state regulators. Non-bank stablecoin issuers approved at the state level that register with the Fed within 180 days of that approval could work under the bill.

The legislation would prohibit companies from mixing customer funds — including stablecoins, private keys and cash — with corporate assets in an effort to protect consumers in the event of bankruptcy. And it would direct the Fed to study the impact of a potential U.S. digital dollar — also known as a central bank digital currency — including the potential effects on the financial system and banking industry, as well as Americans’ privacy.

The panel may be able to vote on the bill as early as next week, those familiar with the discussions said. But Brad Sherman, one of the senior Democrats on the committee, told Bloomberg on Tuesday that no date has yet been set.

The panel’s chances of considering the bill before the end of the year are shrinking, with the upcoming midterm elections throwing a wrench in the process.

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