US Senators Unveil Bill to Ban Algorithmic Stablecoins

United States Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) have taken a significant step toward regulating stablecoins by unveiling a new bipartisan bill to ban algorithmic stablecoins. According to reports, the proposed legislation requires stablecoins to be backed by one-to-one reserves, in cash or cash equivalents, ensuring that each stablecoin can be redeemed at face value. 

US Senators Address Concerns on Algorithmic Stablecoins

This move addresses concerns about the stability and reliability of algorithmic stablecoins, which rely on complex algorithms to maintain their value. Meanwhile, these stablecoins have faced criticism due to their potential susceptibility to market volatility and collapse.

Senators Lummis and Gillibrand’s bill also includes provisions for regulatory oversight of stablecoin issuers. Likewise, issuers must be transparent and maintain operational standards to provide stablecoin users with consistent information on their holdings. Moreover, the proposed bill aims to ensure that stablecoin issuers comply with established guidelines to protect the stability of the US dollar and mitigate potential risks to consumers.

Stablecoin Bill Coming to the US Soon

In February, Maxine Waters, the American politician serving as the US representative for California’s 43rd congressional district since 1991, stated that lawmakers in the country are very close to passing a long-awaited stablecoin bill and are trying to reach a deal with House Financial Services Committee Chair Patrick McHenry.

According to Waters, the lawmakers are focused on passing a bill governing cryptocurrencies tied to the US dollar and other fiat currencies in a 1:1 ratio. Notably, passing a bill surrounding the issuance and regulation of stablecoin has been a topic of discussion for a long time in the US, especially after the collapse of TerraUSD, a cryptocurrency tied to USD issued by Terraform Labs which recently filed for bankruptcy.

Importance of a Stablecoin Bill

Recall that the House Financial Service Committee released a new discussion draft bill last year that would regulate stablecoins in the country. However, US lawmakers postponed the timeline for evaluating the stablecoin bill due to some unsettled topics in the bill.

Meanwhile, Jeremy Allaire, the CEO, and co-founder of Circle, a leading stablecoin issuer, emphasized that the stablecoin bill is critical because it is the first step toward developing a comprehensive regulatory framework for the digital assets market.

Furthermore, Allaire mentioned that countries worldwide including Japan are actively working on establishing their stablecoin laws, and it is important for the US to take the lead in shaping the global regulatory landscape.