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US Legislation Would Temporarily Ban Algorithmic Stablecoins

House Financial Services Committee leaders are still negotiating the terms of a proposed bill to regulate cryptocurrency, despite the fact that the window for action is closing as the midterm elections approach.

The most recent legislative draught, according to Bloomberg, would prohibit algorithmic stablecoins like TerraUSD (UST) for two years while regulatory bodies investigate “endogenously collateralized” tokens.

“Endogenously” refers to something created or produced by the organism or system itself. Prior to their 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 collapse, which saw more than $40 billion in value disappear in a matter of days, has increased interest among lawmakers and regulators and served as Exhibit A in the crypto critics’ playbook.

Previous versions of the bill required stablecoin issuers to keep 1:1 liquid reserves for all stable coins in circulation and restricted the types of assets that could be used to back them.

Bloomberg reports that the latest draft, which is currently with committee chair Rep. Maxine Waters and may need to be reviewed by ranking member Rep. Patrick McHenry, goes even further.


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 track to a federal nod.

According to the business news service, the committee could vote on the bill as soon as next week.

The stablecoin bill has been in the works for months and has previously been delayed, in part due to concerns raised by Treasury Secretary Janet Yellen. When calling for more regulation of the crypto space, Yellen has repeatedly cited the TerraUSD collapse.

Earlier this year, Rep. Waters emphasized the risks of stablecoins, saying,”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.”