Creation of algorithmic stablecoins, working similarly to failed Terra USD coin, may become illegal

The U.S. Congress will consider a new bill to regulate cryptocurrencies. The bill could ban creation and issuance of algorithmic stablecoins for two years, Bloomberg reported. According to this document, the prohibition will apply to cryptocurrencies. Which are linked to prices of fiat currencies by another digital asset of the same issuer.

An example of such a cryptocurrency is stablecoin of failed project Terra UST. The collapse of this coin, supported by Luna token, began on May 8, 2022. On that day, UST lost its connection to USD after a one-time sale of tokens worth about $300 million. The collapse of this stablecoin led to billions of dollars in losses for ordinary investors.

The bill would also allow banks and nonbanks to issue their own stablecoins. And it would prohibit companies from pooling customer funds with company assets to protect consumers in case of company bankruptcy. The bill is currently in its drafting stage. Perhaps a vote on the bill will take place as early as next week, Bloomberg reports, citing unnamed sources.

Our experts note that the U.S. Congress continues to work actively to regulate cryptocurrency sector and increase control in this area.