Editing by Nathaniel Cajuday
Following the collapse of Terra and its UST stablecoin in May, the United States (US) Congress seems to be drafting legislation that would place a ban on algorithmic stablecoins. While the lawmakers study the instruments on the coins, the bill would make it temporarily illegal to issue or create new coins during a two-year period.
According to a report, the bill is being developed by Rep. Maxine Waters (D-Ca.), the chair of the House Financial Services Committee, and Rep. Patrick McHenry (R-NC), the minority ranking member.
Algorithmic stablecoins are a type of cryptocurrency that offers improved price stability without any collateral. Unlike the fiat-back stablecoins, such as USDC and USDT, and cryptocurrency-backed stablecoins, like wrapped-Bitcoin (WBTC) and wrapped-Ethereum (wETH), there are no fiat or cryptocurrencies attached to algorithmic stablecoins to determine the price.
Instead, it is based on algorithms that offer considerably improved capital efficiency compared to other stablecoins. (Read more: What are Algorithmic Stablecoins?)
While as promising as it may seem, the crypto world was shocked earlier in 2022 when the largest stablecoin by market cap, USDT or Tether, crashed to as low as $0.946 when stablecoins are supposed to maintain a 1:1 ratio to fiat. The crash resulted in $60 billion worth of losses. (Read more: Newsletter: What happened to USDT, UST, and LUNA | May 12, 2022
One of the most affected entities due to Terra’s collapse was the 10-year-old crypto hedge fund Three Arrows Capital (3AC) which invested more than $200 million in the cryptocurrency LUNA. (Read more: What is Three Arrows Capital? Investment Firm Confirms Loss from Luna and Terra Collapse)
Recently, Do Kwon, the CEO of Terra, was issued an arrest warrant by a court in South Korea for violating the country’s capital markets laws.
Then just this week, the Seoul Southern District Prosecutors’ Office asked its foreign ministry to cancel Kwon’s passport because he was “obviously on the run and has no intention to appear before us for questioning.” (Read more: Do Kwon Denies Cashing Out $2.7 Billion worth of LUNA before The Crash)
Accordingly, last June, the former and current employees of Terraform Labs were sanctioned by the Seoul Southern District Prosecutor’s Office with a travel ban to eliminate the possibility of key officials within the company fleeing abroad to avoid further investigation. (Read more: Terra Employees Banned from Leaving South Korea)
This article is published on BitPinas: US Solons Eye to Ban Algorithmic Stablecoins for 2 Years
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