Stablecoins: What they are and why Congress is looking to write rules for them

While a relatively new concept, stablecoins have exploded in popularity, leading lawmakers to seek regulation. Here’s what to know.Stablecoins, while a form of cryptocurrency, differ in some major respects from traditional crypto assets, such asand ether. The biggest difference is that while traditional cryptocurrencies can fluctuate wildly in price, that is not supposed to be the case with stablecoins.

Other assets, such as precious metals, can also be used to back stablecoins. For instance, PAX Gold tokens, which were running at about $2,330 a piece on Tuesday, are backed one-to-one by fine troy ounces of gold, stored in LBMA vaults in London, according to the company. A major fear for stablecoins is that they might not have the reserves they claim to have. If that were to be the case, it could cause the value of the coin to untether from its target, for instance, $1, causing the entire issuer to melt down.Rep. Patrick McHenry , chairman of the House Financial Services Committee, said this week at the Bitcoin Policy Institute’s annual summit that stablecoin legislation he has been working on could pass in the coming months with bipartisan support.

This would better allow the government to limit how stablecoins are backed, with the goal of preventing issuers from deceiving investors or the government about what the stablecoin is tethered to. McHenry said his legislation would provide clarity on what exactly a stablecoin is under a federal regime. During his remarks, McHenry noted he has worked closely with his counterpart on the committee, Rep. Maxine Waters , in crafting the stablecoin legislation. He thinks that before the end of the year, the stablecoin legislation could be passed and signed into law.

Source: Digital Coin News (digitalcoinnews.net)

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