The United States Plans to Introduce New Legislation to Regulate the Stablecoin Market

Recently, U.S. lawmakers proposed a new stablecoin bill aimed at strengthening regulation of the digital currency market. This initiative stems from the previous collapse of the Terra/UST algorithmic stablecoin system, which raised significant concern among regulators about the risks associated with stablecoins.

According to the draft content, the bill will prohibit the issuance or creation of so-called "endogenous collateral stablecoins." Such stablecoins typically rely on digital assets created by the issuer themselves to maintain their price stability, rather than external assets. Specifically, if a stablecoin can be converted, redeemed, or repurchased at a fixed price, and its price stability depends on another digital asset from the same creator, it will be considered illegal.

This regulation may affect various types of stablecoins. For example, over-collateralized stablecoins that are backed by the project's own governance tokens may still face regulatory risks despite having their own risk control mechanisms. Certain stablecoin projects with mechanisms similar to Terra, such as Neutrino Protocol's USDN, may also be impacted.

Some algorithmic stablecoins, such as Frax, are currently operating stably, but due to the algorithmic component in their mechanism, they may also fall under regulatory scrutiny. However, for stablecoins primarily backed by decentralized assets like Ethereum, such as DAI and LUSD, the bill has not yet made a clear statement.

It is worth noting that the bill provides a channel for the legal issuance of fiat-backed stablecoins. Banks and credit unions can issue their own stablecoins under the supervision of relevant regulatory agencies. At the same time, the bill also instructs the Federal Reserve to establish a process to review stablecoin issuance applications from non-bank entities.

For the decentralized stablecoin market, this bill may affect some relatively secure projects. As for centralized stablecoins, the bill clarifies the regulatory authorities, which may encourage more banks to participate in the issuance of stablecoins.

Currently, the bill is still in the draft stage and is expected to be discussed in the near future. Its content may still be adjusted before it officially takes effect. The introduction of this bill reflects the regulators' ongoing attention to the stablecoin market and their efforts to seek a balance between protecting investor interests and promoting innovation.