Bloomberg reported that a bill that will ban stablecoins that rely upon another digital currency created by the same owner to maintain its stable rate is on the verge of being passed.
Regulators Keep Deliberating About Stablecoins Rules
The loss of about $40B in the TerraUSD ecosystem has prompted the regulatory bodies to push further to regulate stablecoins. The billions lost were due to the news released earlier this year that US Dollars no longer back TerraUSD. The development caused an imbalance in the minting and burning of the digital assets.
In the quest to protect traders, the regulators claim any stablecoin that relies on the value of another cryptocurrency by the same founder to maintain its constant exchange rate will be banned. Such a stablecoin is called “endogenously collateralized stablecoins.”
This regulation will further protect investors by restricting firms from merging traders’ funds, cash, stablecoins, and private keys with the firm’s assets.
Other legislation decisions will be evaluated when Janet Yellen, US Treasury Secretary, meets on Friday with the Financial Stability Oversight Council through videoconferencing. Brad Sherman, a council member, who is a top Democrat, stated they’d not established the markup date.
Regulators Have Additional Roles
According to the legislation, the Treasury will have to visit the Federal Reserve, the FDIC, the SEC, and the OCC to study similar coins to Terra.
Similarly, two top legislators in the nation, Maxine Waters, a Democrat who is also the head of the House Financial Committee, and Patrick McHenry, a leading member of Republican, are putting efforts together to reach a consensus on stablecoins legislation. News say it is not sure if the Republican has authorized the bill’s latest version.
The President’s Working Group on Financial Market collaborated with the OCC and FDIC to release research on stablecoins.
Janet Yellen, Treasury Secretary, stated that inadequate supervision of stablecoins would expose traders and the entire system to risks. She further explained that when they are well supervised, they will be a helpful means of payment.
A Joint Legislative Effort
Following the pressure on Tether to disclose its reserves, a group of lawmakers, which comprises both parties in the country, have been attempting to create standard regulations for stablecoins.
According to their 2021 draft, the legislation will mandate issuers of stablecoins to be insured institutions and operate like banks in this regard. Banks will, however, need authorization from OCC, while the Federal Reserve will establish application procedures for non-bank issuers.
The Federal Reserve will expectedly have a leading role in the proposed legislation. The proposed law will allow non-bank issuers of stablecoins to operate, provided they registered within 180 days of state approval. The state regulators will also retain their regulatory functions.