How to understand the key ideas of the draft House stablecoin bill and its impact on FRAX?
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How to understand the key ideas of the draft House stablecoin bill and its impact on FRAX?
If passed, a two-year grace period would be sufficient to address all issues, but I believe regulation of non-bank stablecoin issuers should be our primary focus.
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Author: Lolin
Compilation: TechFlow
According to Bloomberg, the House stablecoin bill will impose a two-year ban on algorithmic stablecoins.
Under the current draft, issuing or creating new "endogenously collateralized stablecoins" would be illegal.
When this news broke, I saw many people starting to panic about $Frax and $FXS. While I think such concerns are reasonable, let’s take a closer look at another article from The Block, which appears to offer more details.
First, according to The Block, "The bill would impose a two-year ban on stablecoins that aren't fully backed by cash or highly liquid assets such as U.S. Treasuries."
Ever since the UST collapse, the Frax team has aimed to bring $FRAX to 100% collateralization. Current collateralization is already at 92%, and achieving full backing wouldn’t be a major issue if this bill passes.
The Block also notes, "The bill provides a two-year grace period for currently undercollateralized projects to adjust their business models and gain approval." Even if the bill passes, two years should be more than enough time for Frax Finance to comply with any regulations.
Another important point: the bill hasn't passed yet.
While anything is possible, most draft bills undergo significant changes before becoming law, so I believe it's premature to enter full-blown panic mode.
One notable aspect is that, according to sources familiar with the draft obtained by The Block, "Fiat-backed non-bank stablecoin issuers will also be subject to oversight by state banking regulators and the Federal Reserve." I'm not sure exactly how this process will unfold, but we’re likely looking at extremely burdensome regulation.
Bloomberg’s original report states, "Issuing or creating new endogenously collateralized stablecoins will be illegal."
I know some might interpret this as giving existing algorithmic stablecoins a free pass, but I don’t think we can confirm that yet.
It may simply mean that current algorithmic stablecoins can no longer mint the types of stablecoins outlined in the bill. We need more information.
If the bill passes, bringing $FRAX to full backing should not be difficult.
If passed, the two-year grace period provides ample time to resolve compliance issues. In fact, I believe regulatory oversight of non-bank stablecoin issuers is what we should really be focusing on.
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