The US plans to introduce a stablecoin bill, and some stablecoins may face risks

After the collapse of the Terra/UST algorithm stablecoin system, the United States has strengthened its regulatory efforts on stablecoins. Recently, there are reports that the U.S. House of Representatives is brewing a stablecoin bill that aims to impose a ban on algorithmic stablecoins similar to TerraUSD (UST).

According to the bill draft, issuing or creating new "endogenous collateral stablecoins" will be considered illegal. This definition covers stablecoins that can be converted, redeemed, or repurchased at a fixed monetary value and rely on other digital assets from the same issuer to maintain a fixed price.

"Endogenous Collateral Stablecoin" typically refers to stablecoins issued using assets created by the issuer (such as governance tokens) as collateral. This mechanism can lead to a spiral rise in the price of collateral and the supply of stablecoins during a bull market, while in a bear market, it may trigger a death spiral due to liquidation. For regulators, this mechanism poses significant risks.

The following are several types of stablecoins that may be affected:

1. Over-collateralized types: such as sUSD, aUSD, etc. Although these projects use their own governance tokens as collateral and have risk control mechanisms in place, they still exhibit the characteristics of "endogenous collateral stablecoins" and may face regulatory risks.

2. Terra-like mechanism: such as USDN. The operation mechanism of the Neutrino Protocol is similar to that of Terra, and its stablecoin USDN has long been priced slightly below 1 dollar, which may attract regulatory attention.

3. Partial algorithmic stablecoins: such as Frax. Although Frax currently has a high collateralization ratio and ample liquidity, its mechanism design may still fall under the definition of the statutory prohibition. Frax is a partial algorithmic stablecoin that uses USDC as collateral in the minting process, as well as FXS representing the algorithmic part.

For fiat-collateralized stablecoins, the bill draft provides a legal issuance channel. Banks or credit unions can issue their own stablecoins under the supervision of relevant regulatory agencies. The bill also requires the Federal Reserve to establish a process to review stablecoin issuance applications from non-bank entities.

It is worth noting that some stablecoins based on decentralized assets (such as ETH) used as collateral, like MakerDAO's DAI and Liquity's LUSD, are not currently explicitly included in the category of endogenous collateral stablecoins. Their legality under the new legislation is still unclear.

Overall, the new stablecoin bill may impact many relatively safe decentralized stablecoin projects, such as Frax and sUSD. At the same time, the bill provides a clear regulatory framework for banks to issue stablecoins. Currently, this bill is still in the draft stage and may be discussed as early as next week, with its final content and effective date yet to be determined.