The US is set to usher in regulatory clarity through the framework captured in the proposed bill to rein control over stablecoins operations and structure.
Mandatory Legislation for Stablecoin Issuance
The bill proposes mandatory registration for entities involved in stablecoin issuance. The draft proposal outlines a $1 million fine and a five-year imprisonment term for operating unregistered stablecoin in the US.
The draft bill introduction is captured in the document repository within the House of Representatives as timely, with the hearing scheduled for April 19. The draft bill tasks the Federal Reserve with oversight duties on the stablecoin issuers identified as non-bank, including Circle and Tether involved in USD Coin (USDC) and USDT, respectively.
Rein Control Over Stablecoins Issuance and Running
The draft bill, whose inclusion is evident on the hearing page, derives reference from recent events within the stablecoins segment. The bill seeks to avoid the recurrence of the terraUSD (UST) collapse backed by the LUNA token and the prolonged depegging of the USD coin (USDC).
Stablecoins involve a cryptocurrency class to guarantee price stability for digital asset investors. Since the introduction of BitUSD as the pioneer coin, stablecoins have utilized either algorithms or specific assets to moderate their supply relative to the demand.
The proposed draft illustrates that the insured depository institutions targeting stablecoins issuance would operate within the supervision of the federal banking agency. The non-bank entities would now operate under the Federal Reserve’s oversight.
The bill wades into the ongoing tussle pitting US Securities and Exchange Commission (SEC) against Binance by stipulating mandatory registration for issuers eyeing operations in the country.
The bill captures deterrence to prevent defrauding stablecoin holders as witnessed during Terra collapse. The bill proposes that the applicant always back the stablecoins using reserves such as Fed notes, T-bills, repurchase agreements, central bank deposits, and US dollars. The treasury bills should carry a maturing term of 90 days.
Proof of Technical Expertise, Governance and Financial Inclusion Mandatory for Stablecoins Issuers
The bill directs the stablecoin issuers to demonstrate technical expertise, governance, and financial inclusion. The bill prompted executives drawn from the lead stablecoin to weigh their interest in the regulation.
Circle chief executive Jeremy Allaire revealed the need for inclusive conversation to enable Congress to realize bipartisan backing for laws. Allaire added that inclusive debate on stablecoins regulation would guarantee safe issuance, support, and running of digital dollars.
Elsewhere, the drafted legislation recommends a two-year ban for entities found culpable of issuing and creating stablecoins without securing the tangible assets support.
Viability of Endogenously Collateralized Stablecoins Questioned
The draft bill directs the US Department of Treasury to initiate a study on the endogenously collateralized stablecoins. The bill identifies the endogenous stablecoin as the crypto coin that relies upon the value realized by another digital asset whose creation or maintenance has a similar originator to secure its peg.
The proposed bill permits the US government to formulate standards to ensure interoperability between stablecoins. Also, the landmark bill published by the House Financial Services Committee assures the White House and Congress support in supporting a Federal-guided study of digital dollar (CBDC) issuance.
The proposals fronted by the bill mirror the payment of stablecoin issuers, as illustrated by the stablecoin bill of 2022 attributed to retired Senator Pat Toomey.
The stablecoins’ moratorium witnessed in UST would last until the completion of a study on their viability alongside one exploring the impact CBDC would have upon its issuance by the Fed.
Lawmakers and Regulators Drawn into Stablecoins Legislation
Meanwhile, the bill’s introduction coincides with a period when stablecoins have become critical in Congress. The House Financial Service subcommittee is set to host stablecoins hearing on Wednesday, April 19.
The Wednesday hearing would involve Professor Austin Campbell from Columbia, Superintendent Adrienne Harris from New York’s Financial Services Department, and Jake Chervisnky from the Blockchain Association. Also attending the hearing is Dante Disparte representing Circle Internet Financial.
The hearing will take place hours after the Financial Services Committee finalizes its meeting with the SEC chair Gary Gensler. Gensler is to hold a presentation involving the listing of digital assets as both commodities and security.