On September 20, it was revealed that draft legislation will be passed to form a federal framework around stablecoins. From reliable sources, stablecoins such as TerraUSD will be banned when this bill is passed by Congress.
A source familiar with the draft text procured by The Block revealed that the Federal Reserves and state banking regulators will have to oversee non-bank issuers of stablecoins.
The federal bank regulators of the United States, the Federal Deposit Insurance Corp, and the Office of the Comptroller of the Currency will oversee credit unions that issue their stablecoin.
Further details of the bill gaining momentum in congress reveal that stablecoins developed and issued without the approval of these regulatory bodies come with a penalty. Penalties for defaulting would range from a $1 million fine or five years imprisonment.
According to The Block, the draft bill is still under serious discussion between Rep. Patrick McHenry (R-N.C.), the committee’s top Republican, and House Financial Services Committee Chair Maxine Waters (D-Calif.).
McHenry made it known that this legislation will ensure that stablecoins created without fully-backed outside assets or the approval of the regulatory bodies will receive a two-year ban. He further specified that a stablecoin can be backed by highly liquid assets like US Treasury bonds or fiat.
The passing of this stablecoin bill by the US congress will provide a two-year grace period for stablecoins that are yet to be backed by outside assets. Within the two-year grace period, the stablecoins will be expected to be collateralized by the required assets and change their business model.
The Draft Bill is Yet to be Passed
The meeting between the parties involved in the draft stablecoin bill is yet to state when it will be passed — due to the closed-door nature of the meeting.
Those who spoke to news outlets after the meeting between McHenry and Waters maintained anonymity.
A key statement by McHenry revealed that the Draft Stablecoin Bill would have multiple authors.
“Whether or not it happens this Congress or next Congress, it doesn’t matter to me. Whether it’s Chairwoman Waters or Chairman McHenry who gets to take credit for it, I don’t think anybody cares,” McHenry said.
McHenry, a senior republican, is up to take the chair next year if the Republicans are successful in the mid-term November elections.
The Outcome of the Draft Stablecoin Bill
According to statements made by McHenry and other people involved in the bill, the draft stablecoin bill will mean many things.
State regulators and the US federal banking regulators will have the right to set the standards around stablecoin interoperability. The goal that the bill seeks to achieve is to have the exact accounting and assets standards of the banks and credit unions.
Also, with the stablecoin bill, customers’ funds can quickly be recovered, assuming a stablecoin issuer fails. This is in a bid to stop the recurrence of a similar situation with TerraUSD.