- U.S. bipartisan bill aims to regulate stablecoins for user protection and value stability.
- New bill proposes halting self-collateralized stablecoins to prevent volatility risks.
- Stablecoin issuers will face monthly reporting requirements for increased transparency.
A new bipartisan bill in the U.S. is taking steps toward reshaping the regulatory environment for stablecoins. Introduced by Representatives Bill Huizenga, Bryan Steil, and French Hill, it aims to bring more clarity to the stablecoin market while ensuring user protection from volatility and possible liquidations.
The bill seeks to define stablecoins’ features, focusing on their role in payments and their ability to maintain a fixed value. Its arrival comes at a time of rapid growth in the stablecoin market, with over 144 billion USDT and 60 billion USDC in circulation.
The proponents of the bill say that specific rules will encourage the adoption of virtual assets into the financial system. According to Bill Huizenga, stable cryptocurrencies can become a new element of the payment infrastructure and find their place next to classic methods of transferring funds.
Despite the opportunities, the bill’s introduction also points out the concerns about stablecoins’ ability to maintain their $1 value. While many stablecoins use cash or cash-like assets for backing, some rely on crypto collaterals or algorithmic mechanisms. The latter, such as those employed by the Terra (LUNA) project, have proven highly volatile, leading to calls for regulatory safeguards.
New Classification for Stablecoins
One of the bill’s proposals is introducing a new class of stablecoins: “endogenously collateralized stablecoins.” This category targets stablecoins backed solely by another digital asset issued by the same entity.
Section 11 of the bill prohibits the creation of self-collateralized stablecoins, something that is likely to bring fresh projects that apply such a model to a complete standstill. This is regarded as a reaction to the fall of Terra since the pegged currency, the UST, was directly linked to LUNA.
The bill also includes the examination of non-payment stablecoins and assets related to decentralized protocols carried out by the Secretary of the Treasury. In this one-year review, the assessments will focus on the technological characteristics, such as the structure and decentralization of these assets.
Monthly Reporting Requirements for Issuers
Currently, alongside the issuance of new rules, there are changes in reporting requirements for the stablecoins issuers. Stablecoin issuers must provide monthly reports and CEOs and CFOs must verify the truth what is stated in the reports. These reports would be subjected to audits from a public accounting firm.
The bill’s provisions also outline the need for greater transparency in the issuance and movement of stablecoins, a step aimed at preventing issues related to financial instability.
Payment stablecoins, such as USDT and USDC, would be classified as financial institutions and covered by the Bank Secrecy Act. These issuers must comply with anti-money laundering and know-your-customer (AML/KYC) regulations. The proposed legislation would also allow for the creating of new, localized stablecoins subject to similar regulatory standards.
Implications for the Stablecoin Environment
Due to this, the proposed bill is set to significantly alter the stablecoin industry in the country. If adopted, it might result in excessive scrutiny of the current stablecoins and the creation of new regulatory frameworks at the same time. It corresponds to the European MiCA legislation; some of the decentralized stablecoins are no longer acceptable due to the lack of customers’ protection.
However, looking at the current state of the bill, it is still unclear what the exact regulation of stablecoins will look like in the future. The bill will require more amendment and debate in the President’s office before finally passing through the necessary steps. The situation with stability remains undecided and the debate about the regulation of stablecoins will decide their place in the financial world.
