Stablecoins backed only by other digital assets generated by their issuers will face a two-year restriction on new issuances, with a two-year grace period for existing stablecoins to get clearance after altering their business model.
Draft legislation to establish a legislative framework for stablecoins in the United States would temporarily prohibit the sorts of payment coins that are not backed by external assets — akin to TerraUSD, an algorithmic stablecoin that crashed in 2018.
The Federal Reserve and state banking authorities would also monitor nonbank issuers of stablecoins backed by fiat money, according to a person involved with negotiations and a drafting document acquired by The Block.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, both of which function as federal bank regulators in the United States, would regulate stablecoins issued by banks and credit unions.
Without clearance from these agencies, the issuance of a stablecoin might be punished by up to five years in jail and a $1 million fine.
The current draught bill being negotiated by House Financial Services Committee Chair Maxine Waters (D-Calif.) and the committee’s top Republican, Rep. Patrick McHenry (R-N.Y.), would establish a two-year ban on stablecoins that aren’t fully backed by cash or highly liquid assets, such as U.S. Treasury bonds. In addition, the law would provide a two-year grace period for operators with coins that are not presently collateralized by such assets to restructure their business models and get permission.
The Federal Reserve would also be tasked with studying the economic implications of a digital currency, a process it has already started.
McHenry had not yet approved the legislation, according to several persons involved with the conversations who spoke anonymously because of the closed-door nature of the deliberations. The document is intended for negotiation and is subject to modification. Waters and McHenry spokespeople did not immediately reply to calls for comment. The potential temporary restriction on some stablecoins was first reported by Bloomberg News.