Are stablecoins in the sights of U.S. regulators?
The decline of Terra Luna and it’s UST (and correlating LUNA) token earlier this year brought along plenty of fanfare. It’s full damage and implications, however, have clearly yet to be established; a new draft of a U.S. House bill is proposing a two-year ban on stablecoins similar to Terra’s UST stablecoin.
UST depegged and caused major ripples throughout defi earlier this year. Let’s look at what the legislation could potentially bring to the market.
Stablecoins Under Scrutiny?
According to a report from Bloomberg, the House bill takes aim at stablecoins and would “mandate a study on Terra-like tokens from Treasury” along with a bevy of federal financial bodies, including the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the SEC.
The final version of the bill has not been proposed and the bill, led by House members Maxine Waters and Patrick McHenry, is still working through draft iterations before it’s presentation to the House. However, it’s reported that the bill will also allow banks (and others) to issue stablecoins – so an outright ban does not seem to be in the cards for this legislation. Stablecoin issuers would need to seek approval from standard federal regulators, and a formalized process for non-bank entities that want to issue a stablecoin would be established.
The bill could be presented to vote on as early as the end of this month.
Despite challenges for major stablecoin issues, like Circle and their USDC stablecoin, there is still substantial growth taking place - as exhibited by Circle's USDC market cap dominance. | Source: USDC Market Cap Dominance on TradingView.com
State Of Stablecoins
While Terra’s downfall is often stated as the driver behind stablecoin scrutiny (and rightfully so), there is a long-standing history between crypto critics and stablecoins – including legacy stablecoin Tether (USDT). As we’ve covered in recent months, while critic’s eyes were already honing in on Tether’s reserve assets in recent years, Terra’s crumbling and the billions of dollars lost with it have given U.S. legislators extra ‘pep in their step’ in addressing crypto regulations around stablecoins.
Nonetheless, healthy regulation can spur growth – and that’s been the core of the argument for stablecoin issuers like Circle, who look to build relationships and lobby with current legislators, and even exchanges like Coinbase. Most U.S.-based firms would rather have a clear set of rules and guidelines to follow than worry about getting stuck in a loosely-defined ‘grey area.’ We’ll see how it shakes out.
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