This year, the entire globe saw stablecoins move away from their identification with the word “stable,” which was a significant development. The unfortunate reality is that the entire cryptocurrency market had to take a hit. As a result of Terra’s algorithmic TerraUSD [UST], a variety of stablecoins were observed to have momentarily lost their pegs. Although governments all over the world are keeping a close eye on the situation, the United States government appears to be restricting its focus to algorithmic stablecoins.
The United States government has stated, in a recent draft of a bill, that the production and distribution of “endogenously collateralized stablecoins” would be against the rules if it were to become law. However, it is important to remember that existing service providers were given a window of time of two years in which to improve their business strategies by selecting a variety of new ways to collateralize the products and services they offer.
The catastrophic collapse of Terra took place a few months ago, yet the aftershocks of its fall may still be felt today. The United States Treasury is expected to comply with the proposed legislation in addition to doing a devoted study on algorithmic stablecoins and conferring with the Federal Reserve, the Federal Deposit Insurance Corporation [FDIC], the Securities and Exchange Commission [SEC], and the Office of the Comptroller of the Currency [OCC].
Raising Concerns For The Stablecoin Industry
According to reports, the definition of the bill would encompass stablecoins whose worth depends on the value of another digital asset from the same inventor and is advertised as having the potential to be converted, reinvested, or otherwise redeemed at a fixed price. The proposal raises questions about whether or not stablecoins like Synthetix USD (SUSD), which is presently collateralized with the native asset of the same network in the form of the SNX token, would be included in the definition of the term if it were to become law.
Other similar algo-stablecoins include BitUSD, which is supported by BitShares (BTS). In addition, the proposed legislation directs the U.S. Treasury to conduct a study of algorithmic stablecoins and collaborate with the Federal Reserve, the SEC, the FDIC, and the OCC. The panel may vote on the bill as early as the following week. According to reports, Representative Maxine Waters (Democrat) and Representative Patrick McHenry (Republican) have been attempting to achieve a consensus on the proposal.
On the other hand, it is not known if McHenry gave his approval to the most recent draft. At a hearing on Tuesday, both Waters, who chairs the House Financial Services Committee, and McHenry, who is the Ranking Member of that committee, heard testimony that U.S. dollar-backed stablecoins might improve national security due to the perceived prestige and trustworthiness of the dollar.
The Future Of Algorithmic Stablecoins
After the collapse of Terra’s UST, the crypto community was well equipped for the significant engagement of many governments. Consequently, a restriction on algorithmic stablecoins did not appear to shock the community. However, it is important to note that the aforementioned provisions of the bill may be subject to modification before the final form of the legislation is made public.
According to the reports, the panel that is in charge of supervising the matter might cast their vote as soon as the following week. In spite of the fact that the United States government plans to outlaw algo-stablecoins, the price of TerraUSD, which is now known as TerraClassicUSD [USTC], continued to fall. At the time of publication, the stablecoin was trading at $0.033, which was a long way from its initial peg of $1.
