March 30, 2023

The latest Bloomberg Report Said the upcoming law would ban algorithmic stablecoins such as TerraUSD which collapsed in May this year leading to a global crypto crash.

This bill is currently being drafted in the US House.

Controlling the Stablecoin segment

The bill would make it illegal to develop or issue new “endogenously parallel stablecoins”. Such a stablecoin is pegged to a related cryptocurrency from the same creator to maintain a stable value.

The token is sold with an offer that it can be converted, transferred or redeemed for a specified price.

In the event of a breach, the issuer will be given two years to reshape its operating model and collateralize its coins differently.

It was the collapse of the stablecoin, TerraUSD, local cryptocurrency called Luna that led to the crypto crash in May this year.

Singapore-based cryptocurrency hedge fund, Three Arrows Capital, has filed for bankruptcy due to exposure to this stablecoin.

The subsequent bloodbath did not spare other market players either. Several cryptocurrency exchanges such as ZipMex, Voyager and Vold also collapsed during this period.

The draft law also mandates a study on stablecoins like TerraUSD adopted by the Treasury with the Federal Reserve. Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency (OCC).

The bill paves the way for banks and non-banks to issue new stablecoins following due process. While banks must obtain approval from federal regulatory agencies such as the OCC, non-banks must follow a process established by the Fed.

In addition, the bill would restrict financial institutions from commingling consumer assets such as cash, stablecoins and private keys with its own company assets.

Crypto issues become critical

A KPMG Report Reports published earlier this month suggest that corporates looking for low-risk investments may be more interested in the less volatile virtual asset class of stablecoins.

Reports say the panel could vote on the bill as early as next week, but no date has yet been set. With the upcoming midterm elections, it is imperative that members urgently embrace important economic issues like cryptocurrencies.

However, as negotiations are still ongoing, the final form of the bill may very well change.

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