US crypto regulation: Ban on unsecured algorithmic stablecoins

By KMatt | Blogging Crypto | 18 Apr 2024

Senators Gillibrand and Lummis have introduced a bill that aims to ban unsecured algorithmic stablecoins. This move is aimed at protecting consumers from the risks associated with these cryptocurrencies, which are not backed by physical reserves or other real assets.

The proposed law, called the Lummis-Gillibrand Payment Stablecoin Act, introduces several provisions to regulate stablecoins in the USA.
In summary, what the bill requires is that issuers of algorithmic stablecoins guarantee their tokens by holding liquidity or equivalent reserves to support them, in order to prevent collapses in value such as the unforgettable TerraLuna UST.

The aim is clearly to protect consumers from the risks associated with unsecured stablecoins. These cryptocurrencies are more subject to volatility and collapses in value than stablecoins backed by physical reserves or other assets.
However, the proposal has also met with some criticism as it could hinder innovation in the cryptocurrency sector and stifle competition. Others fear that regulation may be too rigid and not take into account the different types of stablecoins that exist.
Currently, DAI, Frax and USDN fall into this category.


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