The US Congress has passed the country’s first major cryptocurrency legislation, a bill regulating stablecoins, in a win for the crypto industry as it seeks to move into mainstream commerce.

The measures sets up a regulatory regime for stablecoins, which are typically linked to fiat currencies such as the dollar.

The House of Representatives passed the bill on Thursday, after the Senate had approved it in June.

Legitimacy

The rules require stablecoin firms to back their tokens one-for-one with US dollars or other low-risk assets.

Proponents say stablecoins could be used to innovate in payment methods and to make cross-border payments.

Critics say that legitimising the stablecoin industry will make it appear to consumers that the tokens are as safe as fiat currencies or standard banking, when in fact the coins are operated by private companies.

If a stablecoin firm should fail, consumers could be tied up in complex bankruptcy proceedings to recover their funds, or governments could be put under pressure to provide bailouts for the tech firms operating the coins, according to critics.

“Some members may believe passage of this bill, even with flaws, is better than the status quo. We believe this is a fundamental misunderstanding of the risks involved with these instruments,” said an alliance of consumer and advocacy groups in a letter to Congress earlier this year.

They said the bill would “allow the proliferation of assets that consumers will wrongly perceive as safe”.

Volatility

Collapses of stablecoin companies are not unknown. In 2022, Terraform Labs, which operated the TerraUSD stablecoin, shut down taking some $40 billion (£29.8bn) in assets with it.

The company’s founder, Do Kwon, fled from South Korea and in January was extradited from Montenegro to the United States to face criminal charges of deceiving investors about TerraUSD’s stability.

Analysts noted that the stablecoin bill allows tech firms to take part in banking-like activities while facing relatively light-touch regulation.