The new draft bill on stablecoins in the United States may bring about major changes to how they are regulated in the country. The bill, which was published on the House of Representatives’ document repository a few days before a hearing on the topic on April 19th, puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, who respectively issue Tether (USDT) and USD Coin (USDC).
Stablecoins are a class of cryptocurrencies that attempt to provide price stability to investors by being backed by specific assets or using algorithms to adjust their supply based on demand. They were introduced in 2014 with the release of BitUSD.
According to the proposed document, insured depository institutions seeking to issue stablecoins would fall under appropriate Federal banking agency supervision, while non-bank institutions will be subject to Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Issuers outside of the United States would have to seek registration to do business in the country.
Among the factors for approval are the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with maturities of 90 days or less, repurchase agreements with maturities of 7 days or less backed by Treasury bills with maturities of 90 days or less, as well as central bank reserve deposits. Additionally, issuers must demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.
The drafted legislation includes a two-year ban on issuing, creating or originating stablecoins not backed by real assets. It also establishes that the Treasury Department would conduct a study regarding “endogenously collateralized stablecoins.”
The document defines endogenously stablecoins as those that “rely solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.” The draft further allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that the Congress and the White House would support a Federal Reserve’s study about the issuance of a digital dollar.
Circle’s CEO Jeremy Allaire acknowledged the need for deep bipartisan support for laws that ensure that digital dollars on the internet are safely issued, backed, and operated, while Tether did not immediately respond to Cointelegraph’s request for comment.
Stablecoins have grown in popularity in recent years, and many crypto exchanges and investors see them as a safer and more stable alternative to traditional cryptocurrencies. However, they have also faced criticism for their lack of transparency, regulation, and potential risks to the financial system.
The proposed legislation could bring about a new era of stability and regulation in the fast-evolving world of cryptocurrencies. However, it may also lead to a significant shift in the regulatory landscape for crypto companies. Only time will tell how this plays out and what impact it will have on the wider crypto industry.