Did the USA just make algorithmic stable coins illegal?

Introduction: Did the Genius Act make HBD Illegal in the USA?

• The USA just passed different versions of the so called GENIUS ACT to regulate stablecoins.
• Many people on X and YouTube are saying that this act makesalgorithmic stablecoins illegal.
• This category algorithmic stablecoins refers to stable coins not backed by Traditional Assets, defined as dollars or short term treasury bonds.

Answer

• Based on tmy reading of thae actual law, not comments on X, the GENIUS Act, as passed by the US Senate, does not explicitly make all algorithmic stablecoins illegal. But don't take my word for it. Lets look at what the law actually says and draw your own conclusions.

Here's a breakdown of how the GENIUS Act addresses algorithmic stablecoins:

1. Does not prohibit them outright: The Act does not contain an explicit ban on algorithmic stablecoins.

2. Mandates a Treasury study: Instead of prohibiting them, the GENIUS Act mandates a comprehensive study by the Treasury Department on "endogenously collateralized stablecoins," which are a type of algorithmic stablecoin.

3. Imposes strict reserve requirements: The Act imposes stringent reserve requirements for stablecoins used for payment, requiring a 1:1 backing with traditional assets. This means any stablecoin backed primarily by crypto assets, algorithmic mechanisms, or fractional reserves would be considered non-compliant with these requirements.

It is important to note:

• The GENIUS Act effectively bans algorithmic stablecoins from being payment stablecoins, by requiring payment stablecoins to be backed 1:1 by traditional assets.
• So...While not an explicit ban, the 1:1 backing requirement essentially makes algorithmic stablecoins, which rely on algorithms or other crypto assets for stability, non-compliant with the Act's framework for Payment Stablecoins.

Payment Stablecoins

• The Act focuses on payment-focused stablecoins: The regulatory framework of the GENIUS Act generally applies to stablecoins used for payment purposes.

Last words...

• In summary, while the GENIUS Act doesn't make all algorithmic stablecoins illegal, its stringent requirements, particularly the 1:1 backing with traditional assets, effectively prevent their use within the defined regulatory framework for payment stablecoins.
• This may have a significant impact on the future of algorithmic stablecoins in the US, potentially limiting their viability for payment purposes.

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