Senator Cynthia Lummis, a Republican from Wyoming, and Senator Kirsten Gillibrand, a Democrat from New York, released the draft of the Responsible Financial Innovation Act, a sweeping bill regulating the legal status of cryptocurrencies. A rare bipartisan effort for the current political climate in the United States, the bill received a warm welcome from the crypto community.
A few days ago, Lummis told CNBC she hoped the bill “hits the sweet spot between regulation that is clear and understood and does not stifle innovation,” adding that overregulation will result in Bitcoin innovation going to other countries.
Tax exemption and enforcement wars
The 70-page document proposes a tax exemption for up to $200 worth of all crypto transactions, and defers the income recognition for mined and staked assets until they are sold.
It also seeks to end the crypto classification war between the SEC and the CFTC, proposing that digital assets be categorized as securities if they provide the holder with a debt or equity interest in a centralized business entity, with some caveats likely to become the matter of legal battles in the following months.
Bitcoin and Ethereum are all but guaranteed to be classified as commodities.
USDD in danger?
The Lummis-Gillibrand bill also adds protections for stablecoin holders, likely to have been added following the collapse of Terra. If the bill passes, all stablecoins will have to be collateralized by cash, balances at a Federal Reserve bank, or other low-risk liquid traditional assets. If passed, the Responsible Financial Innovation Act will effectively ban undercollateralized algorithmic stablecoins such as UST.
Curiously, Justin Sun's TRON, the issuer of the algorithmic USDD stablecoin which replicates many solutions found in UST, announced just two days ago that the currency would be “overcollateralized,” possibly in anticipation of the Lummis-Gillibrand bill.
This could well spell trouble.