U.S. House Financial Services Committee Unveils Draft Stablecoin Legislation: Key Insights

Investing

Published: April 17, 2023 10:18 pm

The US House Financial Services Committee has released a draft of a new crypto regulation focused on stablecoins. The 73-page draft bill would require stablecoin providers to fully back their digital assets with reserve assets on “at least one-to-one basis.”

New Bill Mandates Stablecoins be Fully Backed by Reserves

Over the weekend, the House published a new crypto-related bill seeking a clearer ruling on stablecoins. The bill, which comes after the catastrophic collapse of Terra’s algorithmic stablecoin, would require stablecoin providers to maintain reserves backing their coins on an “at least one-to-one basis.”

The reserves could be made of US dollars, central bank reserve deposits, Treasury bills with a maturity of 90 days or less, and repurchase agreements with a maturity of seven days or less backed by Treasury bills with the same maturity.

The bill also seeks to task the Federal Reserve with approving and regulating non-bank companies that currently issue or want to issue their stablecoins. Circle and Tether are some examples of non-bank companies that currently have their stablecoins.

On the other hand, banks that want to issue their own stablecoins need approval from their main financial regulator, which could be the National Credit Union Administration, Federal Deposit Insurance, or Office of the Comptroller of the Currency.

Furthermore, any stablecoin provider that wants to do business in the US, regardless of where the company is based, would need to register. Those who fail to register could face up to five years in prison and a $1 million fine.

The new draft bill proposes a two-year ban on “endogenously collateralized stablecoins.” These are defined as stablecoins “in which its originator has represented will be converted, redeemed, or repurchased for a fixed amount of monetary value” and “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”

The bill comes as a House Financial Services subcommittee will hold a hearing on stablecoins on Wednesday in a session titled: “Understanding Stablecoin’s Role in Payments and the Need for Legislation.”

The hearing will feature some prominent figures from the crypto world, including Dante Disparte from Circle Internet Financial, the Blockchain Association’s Jake Chervinsky, Columbia Professor Austin Campbell, and New York Department of Financial Services Superintendent Adrienne Harris.

US Authorities Ramp Up Regulatory Efforts

The new stablecoin draft bill comes as US officials have been increasingly going after crypto firms following the 2022 crypto meltdown. The SEC, in particular, has been cracking down on digital asset companies.

For one, the commission has threatened Paxos, a US-registered firm that issues Binance’s stablecoin Binance USD (BUSD), with legal action due to its issuance of BUSD tokens. The agency argued that BUSD is considered an unregistered security.

More recently, the SEC also sent a “Wells notice” to Coinbase, the largest crypto exchange in the US, threatening the platform with legal actions regarding some of its listed digital assets, its staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet.

Notably, the new draft bill by the House echoes similar legislation introduced by former Senator Pat Toomey in 2022. At the time, the US Congressman said that non-bank issuers must maintain all reserves in assets deemed appropriate by the Office of the Comptroller of the Currency (OCC).

This article originally appeared on The Tokenist