So, US Senators Kirsten Gillibrand and Cynthia Lummis just dropped a stablecoin bill on Wednesday.
The Lummis-Gillibrand Payment Stablecoin Act is looking to ban algorithmic stablecoins that aren't backed by assets. They want issuers to have their tokens backed one-for-one and also introduce some rules for anti-money laundering.
Basically, the US is thinking about outlawing stablecoins that don’t have treasury backing.
They do not want to ban stablecoins, but they want to have a hand in controlling them. If the issuers must hold one-to-one cash or cash-equivalent reserves to back their token, this means that with a letter to the bank, they can make the value of the token decrease severely.
This means that we cannot see stablecoin that are fully decentralized or backed by Bitcoin, but it means that most of the current stablecoins will succeed in passing the new legislation.
In fact since May 2022, US Treasury Secretary Janet Yellen has been calling for stablecoin legislation when she was speaking in response to the collapse in May 2022 of the Terra UST and LUNA used to maintain their peg to the dollar. It is known, of course, that UST was one of the most popular algorithmic stablecoins and so this event will be used as a strong card in the hands of senators who demand this law.
If issuers of algorithmic stablecoins backed their tokens individually and implemented an anti-money laundering framework as the law proposes, there would practically no longer be such a thing as an algorithmic or decentralized stablecoin and most all stablecoins would become centralized.
It is not an outright Banning framework, rather it's more of a controlling framework. The stablecoins can't be stable because of the algorithm but due to the financial reserves. US is trying hard to gain control on everything crypto. They are introducing bills, sending FBI against traders and crypto companies and what not! All these actions have a single goal - control!
But I think there are many crypto friendly countries where such kind of cryptos will still be released and without intervention of US government.
I think that the DAI stablecoin has quite a working model and a well-known cryptocurrency can act as collateral. Although now the project also pledges assets of commercial companies, which complicates the control over the overall pledge, because now we need to study these assets and the risks associated with them.
In Russia, for example, the cryptoruble project is gaining momentum, which decided not to invent anything, but to work on the ready-made model of the DAI project, only cryptocurrencies will be pledged.
https://bitcointalk.org/index.php?topic=5492658.0
I agree, but stablecoins can be stable because of the algorithm, where there is minting and burning with a reserve in Bitcoin or any encrypted currency, and then this encrypted currency will be decentralized and there is no need for financial reserves or creating bank accounts. Some developers may venture to create something similar to LUNA, so I think that yours is like this. Legislation will reduce the desire of developers to create a stable, decentralized cryptocurrency.
LUNA was a big scam, but even I lost money there. I simply diversified some of my stablecoins into this ecosystem and did not engage in staking.
LUNA worked on a different principle. The user bought a LUNA token, then received stablecoins for blocking the LUNA tokens and staked them at 20% per annum. Naturally, this caused a large increase in the price of LUNA tokens.
Any project that wants to do this will end up with the same scam.
That's what US government is trying to stop! Probably they want to introduce a proof-of-reserve for all stablecoins running from US soil and a whole lot of regulatory burdens so that such programs do not flourish there.
I understand that stablecoins can be stable because of the algorithm. But that's exactly what US government will try to control. Stablecoin issuers might consider moving out of US.
The European Union countries and most countries in the world are still cooperating with the United States, and since stablecoin is tied to 1 USD, there must be bank accounts and treasury bonds to support it, otherwise it is can stable but difficult to say that it is tied to 1 dollar.
That's why there were reserves, which were supposed to balance the value, but the ratio of the market value of UST to Luna and the insufficient reserves are what led to the movement of UST down, but it took more than a week for the price to fall between 30 and 60 cents, and therefore there was enough time for those who wanted to sell. Because he sold at a loss of 30%.
What I am trying to say is that there must be reserves, and the more cash and liquid reserves there are, the better the performance of the stable currency, and this decision makes the stablecoins more dependent on the government and afraid of it.
When a stablecoin reserve contains an asset, the price of which determines the price of the stablecoin, then the usual Ponzi scheme, only in a more cunning version. Because earlier entrants benefited from the entry of new entrants into the ecosystem. There were a lot of red flags here, and the biggest red flag was 20% per annum in stablecoins (equated to the price of the dollar). And even the best investors in the world could not give such results.