Leaked draft US stablecoin law, banning LUNA-UST-style algorithm

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2022-09-23 08:34:46

Stablecoin issuers are required to register with the federal government if they want to operate, otherwise there will be strong measures to deal with – like imprisonment.

Today (September 21), a lot of information about the draft law governing stablecoins was revealed.

The first point worth noting, the US will temporarily ban the appearance of algorithmic stablecoins for 2 years. Any creation of stablecoins, such as escrow with other crypto assets but with the same issuer, is prohibited.

The US government in the process of studying the legal regulation of stablecoins

The typical algorithmic stablecoin for the above algorithm is UST – Terra ecosystem stablecoin backed by LUNA. The LUNA – UST model that collapsed in May 2022 caused a disaster for the crypto industry, wiping out $40 billion in market capitalization. Most recently, a Korean court ordered the arrest of Terraform Labs CEO Do Kwon and was on Interpol’s most wanted list.

The text of the statement says that the US government only allows stablecoins backed by cash (US dollars – USD) or highly liquid assets, such as US Treasury bonds. Non-compliant entities have a 2-year window to improve and change their models and apply for permits. The specifics of this draft legislation for other crypto-asset-backed decentralized stablecoins such as DAI are currently unknown.

Firms that issue stablecoins on US soil but do not yet have a banking or credit license will be under the control of 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.

On the other hand, stablecoin issuers will be prohibited from mixing user deposits with company assets, ensuring investors can still withdraw their funds in the event of a stablecoin problem. Organizations and individuals that issue stablecoins without or without the approval of the above agencies will face up to 5 years in prison and an administrative fine of 1 million USD.

The US Federal Reserve (Fed) is also mentioned in the bill. The Fed will conduct research into the economic impact of the digital dollar, a topic the White House has raised in recent documents.

Related: The White House Says It Will ‘Step Away’ If Bitcoin Mining Doesn’t Become More Environmentally Friendly

However, the above is only a draft and legislators can change these contents when officially announced. Cryptocurrency legislation in the US has recently had new hot spots and inadequacies, especially after the fact that the Ministry of Finance of this country removed Tornado Cash on the Ethereum network.

The Merge recently updated, the SEC has many statements implying that Ethereum is a security and will be managed by this agency.

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