US’ new ‘TRUST Act’ brings dollar-pegged stablecoins under financial system, lists rules

US Senator Patrik Toomey has introduced a special framework for fine-tuning stablecoins in terms of transparency and security. The name of this draft is Stablecoin Transparency of Reserves and Uniform Sale Transactions Act of 2022, also known as the TRUST Act. With this, the US officially accepts stablecoins as part of its banking and financial ecosystems. This makes the US the first Western nation to do so. The TRUST Act aims to regulate stablecoins to increase their usefulness for daily payments.

Stablecoins are those cryptocurrencies that attempt to peg their market price to a reserve asset such as gold or fiat currencies. They are popular for digital transactions, converting virtual assets into “real” traditional assets such as US dollars. Tether, USD Coin, and Binance USD are some popular stablecoins pegged to American fiat currency.

Under Senator Toomey’s TRUST Act, stablecoin issuers must secure an official license that qualifies them as legitimate financial firms. Issuers may opt for Comptroller of the Currency (OCC) or Government Money Transmitter licenses or other similar positions.

Stablecoin issuers must also establish a regular audit system and have a clear structure of asset redemption policies. Detailed specifications on the asset to which their stablecoins will be tied have also been mandated by issuers for submission to the relevant authorities, the TRUST Act states.

The document also specifically refers to the dollar-backed stablecoins as “payment stablecoins.” The TRUST Act clarifies that it only applies to these payment stablecoins.

“The legislation affects non-payment stablecoins (e.g., commodity or virtual currency-backed stablecoins, or algorithmic stablecoins),” it reads.

The development comes after US President Joe Biden recently signed executive orders on government oversight of the cryptocurrency industry.

Stablecoins have been under US government scrutiny for some time.

Many US-based crypto-focused companies issue stablecoins, which allow owners to facilitate quick payments while saving on the transaction fee typically charged by banks.

Reports had surfaced over the past year suggesting that the US government was actually trying to regulate these relatively stable cryptocurrencies, which are less affected by market fluctuations due to their underlying stable reserves.

According to CoinGecko, the current stablecoin market cap is over $188 billion (approximately Rs.14.56.57 billion).

Earlier this April, the UK officially recognized stablecoins as official tender.

“The Government intends to legislate to bring stablecoins – when used as a means of payment – ​​into the payments perimeter and create conditions for stablecoin issuers and service providers to operate and invest in the UK.” it was said in an official blog post at the time. US’ new ‘TRUST Act’ brings dollar-pegged stablecoins under financial system, lists rules

Ryan Sederquist

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