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New bill could send stablecoin issuers to jail for 5 years – Here’s what you need to know

In the Brief:

  • The draft bill aims to regulate stablecoins in Congress
  • These coins offer stability to investors by being asset-backed
  • Federal banking agencies will supervise insured depository institutions, while the Federal Reserve will oversee non-bank institutions that issue stablecoins
  • The bill includes a two-year ban on issuing unstable stablecoins

3 - 5 minute read

The U.S. Congress is set to introduce a new draft bill that will provide a framework for regulating stablecoins. Stablecoins are a class of cryptocurrencies that aim to offer investors price stability by being backed by specific assets or using algorithms to adjust their supply based on demand. This type of cryptocurrency was first introduced in 2014 with the release of BitUSD. The proposed legislation requires insured depository institutions seeking to issue stablecoins to fall under the appropriate Federal banking agency supervision, while non-bank institutions would be subject to Federal Reserve oversight.

Issuers out of the United States would also have to seek registration to do business in the country. The proposal also includes a two-year ban on issuing, creating or originating stablecoins not backed by real assets. Furthermore, it establishes that the Treasury Department would conduct a study regarding “endogenously collateralized stablecoins.” According to the document’s definition, endogenously stablecoins “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”

The draft states that the U.S. government would establish standards for interoperability between stablecoins. Additionally, it determines that the Congress and the White House would support a Federal Reserve study on the issuance of a digital dollar. Among the factors for approval are the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars, Treasury bills with maturity of 90 days or less, repurchase agreements with maturity of 7 days or less backed by Treasury bills with maturity 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.

Circle’s CEO Jeremy Allaire weighed in on the proposed legislation, highlighting the need for deep, bipartisan support for laws that ensure digital dollars on the internet are safely issued, backed and operated. On the other hand, Cointelegraph reached out to Tether but did not receive an immediate response.

This proposed legislation could have significant implications for the market value of stablecoins. Non-bank stablecoin issuers such as Tether and Circle could be impacted by the new regulatory framework that the Federal Reserve will put in place. It is worth noting that the proposed legislation comes a few days before a hearing on the topic on the 19th of April.

The Bottom Line

The proposed legislation for stablecoins provides a regulatory framework that has potentially significant implications for the market value of stablecoins. Non-bank issuers such as Tether and Circle could be affected by the new regulatory framework that the Federal Reserve will put in place. Therefore, traders in this market should monitor the development of the proposed bill and adjust their trading strategies accordingly.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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