Cryptocurrencies have been in existence for over a decade, and stablecoins have emerged as a class of digital assets that offer price stability, attempting to mitigate the high volatility seen in other cryptocurrencies. Stablecoins aim to achieve this stability by being backed by specific assets such as U.S. dollars or using algorithms to adjust their supply based on demand. In 2014, BitUSD was the first stablecoin to be released, and since then, stablecoins have gained significant popularity. However, the lack of clear regulatory guidance has been a significant barrier to their widespread adoption.
Recently, a draft legislation proposal from the US Congress has outlined some guidelines for stablecoin issuers in the country. The proposal aims to provide a regulatory framework for stablecoins to promote innovation, protect consumers, and maintain financial stability. The proposed legislation seeks to regulate stablecoins in two categories, insured depository institutions, and non-bank institutions.
The proposal requires insured depository institutions to fall under the appropriate federal banking agency's supervision, while non-bank institutions would be subject to Federal Reserve oversight. The penalty for failure to register could result in up to five years in prison and a fine of $1 million. Furthermore, stablecoin issuers out of the United States would have to seek registration to conduct business in the country.
To receive approval, stablecoin issuers must maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits. The proposal also requires stablecoin issuers to demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.
The proposed legislation also includes a two-year ban on issuing, creating or originating stablecoins not backed by tangible assets. Additionally, it establishes that the U.S. Department of the Treasury would conduct a study regarding “endogenously collateralized stablecoins.“ This means that stablecoins must have assets that match the value of the stablecoin. Furthermore, the proposal allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that Congress and the White House would support a Federal Reserve study about issuing a digital dollar.
In conclusion, the proposed legislation seeks to regulate stablecoins to promote innovation, protect consumers, and maintain financial stability. The proposal seeks to establish a regulatory framework that ensures stablecoin issuers maintain reserves backing the stablecoins and have established governance structures. It also establishes a two-year ban on issuing stablecoins not backed by tangible assets and allows the U.S. government to establish standards for interoperability between stablecoins. The future of cryptocurrencies, including stablecoins, will depend on how well they can be regulated to ensure stability, innovation, and consumer protection.
Disclaimer: The information provided in this section is for informational purposes only, doesn't represent any investment advice or FameEX's official view.