U.S Government may ban Algorithmic Stablecoins

Sahana Kiran
Source – Unsplash

This year, the entire world witnessed stablecoins steering away from their association with the word “stable.” Sadly, the entire crypto market had to bear the brunt. Ticked off by Terra’s algorithmic TerraUSD [UST], an array of stablecoins were seen temporarily losing their peg. While governments across the globe are keeping an eye, the US government seemed to be limiting its purview to algorithmic stablecoins.

According to a recent draft bill, the US government notes that the creation and issuance of “endogenously collateralized stablecoins” would be illegal.

However, it should be noted that existing providers were given a period of two years to spruce up their models by choosing different ways to collateralize their offerings.

The dramatic downfall of Terra occurred several months ago, but the shockwaves of its collapse continue to linger.

Alongside dedicated research on algorithmic stablecoins and consulting with the Federal Reserve, the Securities and Exchange Commission [SEC], the Federal Deposit Insurance Corporation [FDIC], and the Office of the Comptroller of the Currency [OCC], the U.S. Treasury is required to comply with the proposed legislation.

Is this the end of Algorithmic Stablecoins?

Following the demise of Terra’s UST, the community was well prepared for the extensive involvement of governments. Therefore, a ban on algorithmic stablecoins did not seem to surprise the community.

However, it should be noted that the above terms of the bill could change before the final version of it is rolled out. As per Bloomberg, the panel overseeing the same could vote as early as next week.

Furthermore, House Financial Services Committee Chairwoman Maxine Waters and Ranking Member Patrick McHenry have reportedly been working together and have been negotiating on stablecoin legislation.

While the US government intends to ban Algo stablecoins, the price of TerraUSD now TerraClassicUSD [USTC] continued to plummet. At press time, the stablecoin was far from its $1 peg as it was trading for $0.033.