U.S. Draft Legislation Proposes Ban on Algorithmic Stablecoins Like TerraClassicUSD (USTC)

U.S. Lawmakers Target Algorithmic Stablecoins

Draft legislation in the U.S. House of Representatives seeks to impose a two-year ban on the creation or issuance of new algorithmic stablecoins, such as TerraClassicUSD (USTC). This move comes after the collapse of TerraClassicUSD earlier this year, which caused significant disruption in the cryptocurrency market.

Key Provisions of the Proposed Bill

The bill would criminalize the creation or issuance of "endogenously collateralized stablecoins," a category that includes TerraClassicUSD. These stablecoins are algorithmically stabilized and rely on internal mechanisms rather than being backed by external assets like fiat currencies or commodities.

Market Impact and Regulatory Concerns

The collapse of TerraClassicUSD led to widespread contagion in the crypto market, raising concerns among regulators about the risks posed by algorithmic stablecoins. The proposed legislation reflects growing scrutiny of these assets and efforts to mitigate potential systemic risks.

Implications for the Crypto Industry

If passed, the bill would significantly impact the development and issuance of new algorithmic stablecoins in the U.S. market. It signals a tightening regulatory landscape for cryptocurrencies, particularly those deemed high-risk by lawmakers.

The proposal underscores the ongoing debate over how to regulate stablecoins and ensure financial stability in the digital asset space.