A bipartisan bill gaining steam in the House could lead to a two-year moratorium on issuing so-called algorithmic stablecoins like TerraUSD, which blew up spectacularly early this year and led to steep investor losses.
The bill is being crafted by Financial Services Committee Chairwoman Maxine Waters, a California Democrat, with the input of the ranking Republican on the committee, Patrick McHenry of North Carolina, according to reports in Bloomberg and American Banker.
The bill would also mandate that the Treasury Department, in conjunction with other financial regulators, draft a study on the threats and benefits of algorithmic stablecoins, Bloomberg reported.
Stablecoins are a type of cryptocurrency that aim to maintain a stable value relative to government-issued currencies like the U.S. dollar DXY, +0.71%. TerraUSD USTUSD, -4.34% — also known as UST — is an algorithmic stablecoin, which strived to maintain a one-to-one peg against the U.S. dollar through an algorithm that controls the supply of an associated cryptocurrency called LUNA.
Algorithmic stablecoins differ from collateralized stablecoins that derive their value through backing of non-crypto assets like U.S dollars. Examples of collateralized stablecoins include Tether USDTUSD, +0.01% and USD Coin USDCUSD, .
The collapse of Terra got the attention of high-ranking U.S. policy makers, including Treasury Secretary Janet Yellen, who in May said the incident “illustrates that this is a rapidly growing product and that there are risks to financial stability.”
Sen. Pat Toomey of Pennsylvania, the ranking Republican on the Senate Banking Committee, suggested at the time that algorithmic stablecoins might be “inherently unstable.”
The news comes days after South Korean prosecutors asked Interpol to issue a fugitive alert for Do Kwon, the founder of Terra issuer Terraform Labs.
The Associated Press reported Monday that Kwon’s whereabouts are unknown, though South Korean authorities believe that he was recently in Singapore.
Kwon took to Twitter over the weekend to claim that he is “not on the run” and that he doesn’t “have anything to hide.”