New US Draft Law Bans Algorithmic Stablecoins Like LUNA-UST

In the US draft law that will temporarily ban algorithmic stablecoins for 2 years, it is illegal to issue or create new “endogenous collateralized stablecoins”.

Today, there are many leaks about the draft stablecoin regulation law being developed by the United States, with a lot of interesting information.

Specifically, the US will temporarily ban algorithmic stablecoins for 2 years, not allowing the creation of stablecoins backed by another digital asset but sharing the same issuer.

A good example of the above algorithmic stablecoin is the LUNA-backed UST coin, both created by Terraform Labs under the direction of CEO Do Kwon. LUNA and UST both collapsed in May 2022, wiping over $40 billion in crypto market capitalization. Mr. Do Kwon was recently arrested by the Korean authorities and is asking for Interpol’s arrest warrant.

The leaked content claims that the US will only allow stablecoins backed by cash (ie US dollars – USD) or highly liquid assets such as US treasury bonds. Stablecoin issuers that have not yet complied with the law will have 2 years to change their operating model and apply for a license. The stance of the draft legislation on crypto-asset-backed decentralized stablecoins such as DAI is currently unknown.

Firms that issue stablecoins in the US but do not yet have a banking or credit license will be subject to state and federal financial authorities. In contrast, US bank and credit institution stablecoins will be managed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

Stablecoin issuers will be banned from mixing user deposits with company assets, ensuring investors can still withdraw their funds in the event of a stablecoin problem.

The draft law states that those who issue stablecoins without the approval of the above agencies will face up to 5 years in prison and an administrative fine of 1 million USD.

The law also requires the US Federal Reserve Bank (Fed) to conduct research on the economic impact of the digital dollar, which has been directed by the White House in recent policy documents.

The specific content of the draft stablecoin regulation will still be subject to change or addition by lawmakers.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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