Sonic Labs Abandons Ambitions for USD-backed Stablecoin Relying on Algorithms
A Regulatory Wrench in the Gears of Algorithmic Stablecoins
Sonic Labs has decided to postpone the launch of its USD-based algorithmic stablecoin - a hindrance by U.S. regulations is the likely culprit. The proposed STABLE Act could potentially ban algorithmic stablecoins for a period of two years, a development that Sonic Labs' co-founder Andre Cronje has described as one of the reasons for the project cancellation.
The STABLE Act is seeking to impose stricter regulations on algorithmic stablecoins, aiming to address the concerns that arose following the collapse of TerraUSD in 2022. To counter this, the bill proposes several key provisions:
- A moratorium on launching new "endogenously collateralized" stablecoins for two years, with existing ones facing heightened scrutiny.
- Requirement for full reserve backing using U.S. dollars or government securities.
- A ban on yield payments to holders.
- Limiting issuance to federally regulated banks or licensed entities.
The bill also encompasses enhanced consumer protections and AML/KYC compliance under the Bank Secrecy Act, as well as an exemption from securities classification for stablecoins that meet certain requirements.
Cronje has expressed reservations about the field of algorithmic stablecoins, citing the emotional pressure experienced during previous failures, particularly following the Terra crisis. Meanwhile, there has been a mixed reaction from the community with some exploring strategies to circumvent the new rules.
A more relaxed approach to blockchain-based currencies has been expressed by the Central Bank of the UAE Governor Khaled Mohamed Balama, who sees potential advantages in improving financial stability and combating financial crime. The UAE has also expressed an interest in accepting some cryptocurrencies, allowing for the usage of a dirham based on blockchain technology in addition to the traditional currency.
The ongoing debates over regulations have highlighted the complexities surrounding algorithmic stablecoins, and lawmakers grapple with finding a harmonious balance between innovation and oversight.
- Sonic Labs' planned launch of its USD-based algorithmic stablecoin has been delayed due to U.S. regulations, with the STABLE Act potentially causing a two-year ban on new algorithmic stablecoins.
- Andre Cronje, co-founder of Sonic Labs, has cited the STABLE Act and the emotional pressure from past failures, including TerraUSD, as reasons for the project's cancellation.
- The STABLE Act aims to address concerns from the TerraUSD collapse by imposing stricter regulations on algorithmic stablecoins, such as full reserve backing, limiting yield payments, and heightened scrutiny for existing coins.
- The bill also proposes enhanced consumer protections, AML/KYC compliance, and an exemption from securities classification for stablecoins meeting certain requirements.
- Cronje has reservations about algorithmic stablecoins due to past failures, but some members in the community are exploring strategies to circumvent the new rules.
- The Central Bank of the UAE's Governor Khaled Mohamed Balama views blockchain-based currencies favorably, seeing potential advantages in improving financial stability and combating financial crime.
- The UAE has expressed an interest in accepting some cryptocurrencies, allowing for the use of a dirham based on blockchain technology alongside the traditional currency.
- Lawmakers face complexities in finding a balance between fostering innovation and maintaining oversight in regards to the ongoing debates over algorithmic stablecoin regulations within the technology-driven finance sector.
