A new stablecoin draft bill published by the U.S. House Financial Services Committee could present significant challenges to some stablecoin issuers if it passed into law.
The bi-partisan bill, which has reportedly been circulating among lawmakers since last fall, was made public on the House Committee’s hearing page for the first time on Saturday. The House Committee is scheduled to meet on Wednesday to discuss the role of stablecoins in payments and the need for appropriate legislation.
The bill proposes a two-year ban on “endogenously collateralized” stablecoins, referring to those that are backed by other cryptocurrencies as opposed to fiat currency. During this time, the U.S. Treasury would carry out an extensive study on these types of assets and present a report of its findings to the House Committee no later than a year after the bill is passed.
The Treasury would look into the nature of stablecoin reserves, aspects of decentralization in the issuing protocol’s governance structure and the types of algorithms employed by them.
This new piece of potential legislation also calls for Federal banking regulators to prescribe standards for interoperability between stablecoin payment systems. It also stipulates that the Federal Reserve would be in charge of approving and regulating non-bank stablecoin issuers – a category that the Circle and Tether, two of the largest players in the space, fall under.
“While comprehensive, there are clearly open and challenging issues with the bill as proposed, and now is the time for our country and political leaders to really dig in and get this right. The role of the dollar in the world is at stake,” Circle CEO Jeremy Allaire tweeted on the subject.
The bill’s language led to a considerable amount of confusion and debate within the crypto community as to whether the ban was limited to algorithmic stablecoins, like the first version of UST, or implied that all decentralized stablecoins would be considered illegal.
Are you sure? Aren’t it just these which they don’t like? pic.twitter.com/GcwzVCymim
— Curve Finance (@CurveFinance) April 16, 2023
Over the last few years, stablecoins have become a cornerstone of the crypto economy, facilitating much of the borrowing and lending activity on decentralized protocols. In 2022, stablecoin settlement volume hit a record $7.4 trillion, representing a 600% increase over two years, The Defiant reported.