Joshua S. Gottheimer, the U.S. representative for New Jersey, has revealed an initial draft of legislation that will help provide regulatory clarity to the stablecoin sector.
According to a press release shared with Coinfomania on Tuesday, the proposed legislation dubbed the Stablecoin Innovation and Protection Act is geared toward establishing eligible stablecoins and protecting the interests of investors.
The stablecoins will be considered eligible only if they are 100% backed by the U.S. dollar and can be redeemed on a 1:1 ratio.
Stablecoins that pass these criteria could be issued by either a government-backed bank or other licensed financial services providers, with the reserve consisting of U.S. dollars, U.S. debt, or any other asset approved as suitable cash collateral by the Office of the Comptroller of the Currency (OCC).
Additionally, the cash collateral must be held in a separate Federal Deposit Insurance Corporation (FDIC)-insured account. The FDIC will be required to create a Qualified Stablecoin Issuer Fund to manage the insurance for the non-bank stablecoin issuers.
Once the bill is passed, the OCC will be responsible for overseeing the stablecoin issuers. Along with other necessary regulatory bodies, it will create rules that govern stablecoin issuers and the market as a whole.
Gottheimer said,
“The expansion of cryptocurrency offers tremendous potential value for our economy. But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers… We shouldn’t stifle innovation in the cryptocurrency market. We should ensure the proper safeguards are in place and ensure our nation is a leading force in financial technology.”
The Market Manipulation Criticism
The growth of this sector of the cryptocurrency industry has been nothing short of phenomenal, as it had grown from under $1 billion a few years ago to a whopping 179 billion dollar market.
However, critics have chastised the asset class, arguing that it is used to manipulate the prices of top cryptocurrencies. Bearing the brunt of this criticism is the largest stablecoin in the market, Tether (USDT).
While the USDT issuer and other stablecoin issuers keep a substantial reserve of U.S. dollars to back up the value of the minted tokens, it is not always certain that they can guarantee 100% cash redemption.
Earlier in October 2021, the U.S. Commodity and Futures Trading Commission (CFTC) fined Tether for making misleading claims on its USDT reserve.
Hence, Gottheimer’s proposed legislation seeks to place definitions around stablecoins and provide a framework for regulating the rapidly growing stablecoins market, separating it from other virtual currencies, and protecting investors from bad actors.
Speaking on the latest development, the Chief Strategic Officer at Circle (USDC issuer), Dante Disparte said,
“We welcome the leadership from Representative Gottheimer, who has taken a thoughtful, risk-based approach to stablecoin innovations in the U.S. and how they can fit inside Federal regulatory frameworks.
The draft is still under discussion and is currently requesting input from Capitol Hill. Gottheimer noted that his proposed legislation has gotten the support of Nellie Liang, the U.S. Under Secretary of the Treasury for Domestic Finance.
