US Draft Bill Plans to Ban Algorithmic Stablecoins for 2 Years

Stablecoins

The draft stablecoin bill in Congress requires The Federal Reserve System and state banking regulators to approve any stablecoin plans by non-bank entities before they can be legally issued.

Issuers of stablecoin approved by state regulators will have to get themselves registered with the Federal Reserve within 180 days to legally continue their operations, media reports claiming access to the draft bill said on Wednesday. 

In July, CryptoPotato reported that the stablecoin bill was delayed by over a month due to a last-minute change suggested by Treasury Secretary Janet Yellen. She argued that the legislation should provide for the segregation of the customers’ assets from the wallet custodians to preserve them in a bankruptcy scenario.  

In June, Japan passed a similar bill recognizing stablecoins as digital money that have to be pegged to the yen or another legal tender. 

Algo Stablecoins to Be Banned 

New stablecoins backed by assets created by the same issuers or “endogenously collateralized stablecoins” will not be allowed for at least the next two years. Any such existing stablecoins will be required to change their business model and receive fresh approval from appropriate authorities within two years.


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Stablecoins issued without due approval by designated regulators will be illegal and will be punished by up to a five-year prison term and a $1-million fine. The bill envisions such cryptocurrencies to be collateralized by cash or highly liquid assets such as Treasury bonds.

The draft legislation aims to create a regulatory framework around stablecoins and asks The Federal Reserve to study the economic impact of the US digital dollar (CBDC). It also mandates a study on algorithmic stablecoins in consultation with the Fed, the Federal Deposit Insurance Corp., the OCC, and the Securities and Exchange Commission. 

Banks Need Approval From Regulators 

Banks and other traditional financial institutions will need the approval of federal banking regulators – the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp – the draft legislation says, according to media reports.

It also addresses the issue of stablecoin interoperability and vests the power to create standards in federal banking regulators and state watchdogs. The bill aims to bring the asset and accounting standards of stablecoins in line with banks and credit unions.

The draft legislation prohibits the mixing of customers’ funds and their keys with those of the stablecoins and other assets so that users can redeem their investments quickly in case of insolvency or bankruptcy.  

It may Come for Voting Anytime 

The draft bill is under negotiation between House Financial Services Committee Chair Maxine Waters and Rep. Patrick McHenry. There is still a possibility of changes being made in it as it has still not been signed off by Waters and McHenry. 

Although a markup date has not been decided yet, the Committee could vote on the bill as early as next week as it has time only till the end of the current year to consider it, and the upcoming midterm election doesn’t leave much room to delay it further. 

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