The United States Representative for New Jersey, Joshua S. Gottheimer, has released an initial draft of legislation that will help bring regulatory certainty to the stablecoin sector.
According to a press statement issued on Tuesday, the new legislation, dubbed the Stablecoin Innovation and Protection Act, is aimed at developing qualified stablecoins and safeguarding investors’ interests. Only stablecoins that are 100 percent backed by the US dollar and can be redeemed at a 1:1 ratio will be considered eligible.
Stablecoins that meet these conditions could be issued by a government-backed bank or other licensed financial services providers, with the reserve consisting of USD, US debt, or any other asset approved by the Office of the Comptroller of the Currency as sufficient cash collateral (OCC).
The cash collateral must also be stored in a separate FDIC-insured account. To oversee the insurance for non-bank stablecoin issuers, the FDIC will be required to establish a Qualified Stablecoin Issuer Fund.
After the measure is passed, the OCC will be in charge of overseeing stablecoin issuers. It will develop rules that will control stablecoin issuers and the market as a whole, in collaboration with other necessary regulatory organizations.
This area of the cryptocurrency industry has evolved from less than $1 billion a few years ago to a stunning $179 billion market. Critics, on the other hand, have lambasted the asset class, claiming that it is used to manipulate the values of leading cryptocurrencies. Tether (USDT), the market’s largest stablecoin, has taken the brunt of this criticism.
While the USDT issuer and other stablecoin issuers hold a significant reserve of US dollars to back up the value of the produced tokens, it is not always assured that they can guarantee 100% cash redemption.
Earlier in October 2021, the United States Commodity and Futures Trading Commission (CFTC) penalized Tether for making false representations about its USDT reserve.
As a result, Gottheimer’s proposed law intends to define stablecoins and create a framework for regulating the fast growing stablecoins market, distinguishing it from other virtual currencies, and safeguarding investors from rogue actors.
The document is still being debated, and Capitol Hill is being asked for feedback. Nellie Liang, the United States’ Under Secretary of the Treasury for Domestic Finance, has endorsed Gottheimer’s proposed legislation, according to Gottheimer.