New draft legislation on stablecoins in the United States House of Representatives proposed to impose a two-year ban on new algorithmically pegged stablecoins like TerraUSD (UST).
The proposed legislation would require the Department of the Treasury to conduct a study of stablecoins similar to UST in collaboration with the United States Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission.
An algorithmic stablecoin is a digital asset the value of which is kept steady by an algorithm. While an algorithmic stablecoin is pegged to the value of a real-world asset, it is not backed by one.
The stablecoin bill has been in the works for several months now and has been delayed on numerous occasions. Treasury Secretary Janet Yellen has repeatedly cited the Terra collapse when calling for more regulation of the crypto space.
The Terra ecosystem failure that began with the depegging of its algorithmic stablecoin UST eventually wiped out the $40 billion ecosystem. This led to a crypto contagion that saw the crypto market lose nearly a trillion dollars worth of market value within a couple of weeks.
Markets have yet to recover from the contagion, and the Terra collapse definitely cast a shadow on the future of algorithmic stablecoins and became a hot topic for critics including certain policymakers who have been using it to advocate for stricter policies for cryptocurrencies. The latest draft proposal to put a temporary ban on such stablecoins is one such example. Under the current draft of the bill, it would be illegal to issue or create new “endogenously collateralized stablecoins.”
The draft proposal evoked mixed emotions from Crypto Twitter. While some market observers called it a good idea, which would help avoid further such collapses, others believed the Terra fiasco has put the industry back by years. Pointing toward the two-year temporary ban, some implied that even though algorithmic stablecoins might not be the culprit, the execution by the Terra team has cast a shadow on the whole algorithmic stablecoin industry.
In many ways, Do Kwon set the crypto space back by years. Most Terra fans don’t even realize that the “decentralization maxi” spiel was pure LARP – Terra was one of the most centralized L1s, and UST’s primary backing ($3b in BTC) was sitting in one guy’s wallet with no oversight. https://t.co/MJ2c7U1kgJ
— FatMan (@FatManTerra) September 21,…
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