The US Congress has introduced a new draft bill aimed at regulating stablecoins, which would impose strict regulations on non-bank stablecoin issuers and could result in imprisonment and fines for failure to register.
The US Congress has announced its intention to introduce a new draft bill aimed at regulating stablecoins in the country, in a move that has sent shockwaves across the cryptocurrency industry. The proposed legislation, which has been published on the House of Representatives’ document repository, comes just days before a scheduled hearing on the topic on April 19.
Stablecoins are a class of cryptocurrencies that have become increasingly popular in recent years due to their ability to offer price stability by being backed by specific assets or using algorithms to adjust their supply based on demand. The first stablecoin, BitUSD, was introduced in 2014.
The new draft bill places the Federal Reserve in charge of non-bank stablecoin issuers such as Tether and Circle, and imposes strict regulations on these entities. Insured depository institutions seeking to issue stablecoins would fall under the supervision of the appropriate Federal banking agency, while non-bank institutions would 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 based outside the US would also have to seek registration in order to conduct business in the country. Among the factors for approval are the ability of the applicant to maintain reserves backing the stablecoins with US dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of 7 days or less backed by Treasury bills with a maturity of 90 days or less, as well as central bank reserve deposits.
Issuers must also 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 real assets. It establishes that the Treasury Department would conduct a study regarding “endogenously collateralized stablecoins.” According to the document definition, endogenously stablecoins “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”
In addition, the draft bill allows the US government to establish standards for interoperability between stablecoins. It also determines that Congress and the White House would support a Federal Reserve study on the issuance of a digital dollar.
The move has been met with mixed reactions from within the cryptocurrency industry. Some experts have hailed it as a positive development that will help to provide a more stable regulatory framework for stablecoins. Others have expressed concern that the proposed legislation may stifle innovation and hinder the growth of the industry.
In a Twitter thread, Circle’s CEO Jeremy Allaire commented on the proposed legislation, saying that “there is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed, and operated.” It remains to be seen how the proposed legislation will be received by Congress and the wider cryptocurrency community.