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Curve analyzes the latest US stablecoin draft: drive Builder out of the US

2022-09-23 16:44

Read this article in 19 Minutes

Curve reiterated that the only victim of this legislation would be the United States itself.

Original title: "Sept. 21, 2022: Endogenous Collaterization "

Original compilation: 0x214, BlockBeats

September 20, According to Bloomberg, the U.S. House of Representatives is drafting legislation to regulate Stablecoins, which will impose a two-year ban on the UST-like algorithm Stablecoins. According to a copy of the latest version of the draft, it is illegal to issue or create new "Endogenously Collateralized Stablecoins" (Endogenously Collateralized Stablecoins). A House committee could vote on the draft legislation as early as next week. In this regard, Curve published an article to deeply analyze the new term "Endogenous Mortgage Stablecoin", and BlockBeats compiled and translated it as follows:

As soon as the news came out on September 20, Twitter was flooded with bad news. A series about the United States Stablecoin Draft Act have been widely circulated, and the bill may completely destroy Stablecoin.

The market panic spread rapidly, and FXS plummeted by 10%.

What happened? Encryption researcher EasonWu made a quick summary: p>

- This bill will restrict US Stablecoin issuers from being approved;

- ;The bill is still in its early stages and changes are still possible;

- Centralized Stablecoins are largely unaffected;

- FRAX will make minor adjustments to comply;

- Overcollateralized Stablecoins are not affected;

- This bill kills Stablecoin innovation, but there is still room for survival.

It will be a while before sluggish lawmakers actually act on the bill, which It's still in the draft stage, which means it hasn't even been registered with Congress yet. That puts it well behind several other stablecoin-threatening bills that haven’t really materialized yet.

HR 7328: Stablecoin Transparency Bill, Trey Hollingsworth, March 31

S 3970: Stablecoin Transparency Act, Bill Hagerty, May 10

HR 4741: Market Structure for Digital Assets...Donald S. Beyer Jr., August 13

S 4356: Responsible Financial Innovation Act, Lummis/Gillibrand, September 15

For any draft item to become law, it usually needs to go through a long and cumbersome process. Not until swing state politicians stuff it with hundreds of pages of irrelevant material.

Legislative Agenda Only In 9 weeks, the U.S. Congress is now taking the time to integrate these fragmented drafts into a bill that shakes the entire financial ecology. It is unlikely.

Having said that, when this kind of "hasty" bill discussion is included in the agenda This is enough to cause us to be vigilant and worried. According to the information that has been leaked so far, these draft documents are too sloppy, which is enough to demonstrate the urgency of the official intention to intervene.

Understand that with UST collapsing, the sense of urgency in Washington DC has increased dramatically. Do Kwon not only drained all of our wallets, he also got a bunch of American crypto users thrown in jail.

When Congress achieves bipartisan consensus on the same issue, it is often ordinary people who suffer. The reason this draft should be of interest is that it is said to have been co-sponsored by Patrick McHenry, previously known as the “Cryptocurrency Champion.” After all, the current rumors in the market are basically rumors, and we can also listen to the opinions of this cryptocurrency champion. However, this may be bad news for anyone bidding on his NFT in the PAC DAO Congressional Auction .

The "Endogenously-collateralized" Stablecoin mentioned in the bill has caused Attention all, this word takes us back to high school biochemistry class.

Looking back, the first time I heard the word was in an interesting Twitter see.

However, this word became popular a month ago. It seems that JerryBrito started teaching people to use such obscure expressions.

We speculate that Congress uses this term just to sound more powerful. It's fashionable to complain that the ignorant in Washington haven't done their homework, so they parrot it to appear smart.

An "endogenous" system is defined as an system. LUNA is endogenous to UST, while the dollar exists outside the USDC ecosystem, so USDC is "exogenous". About 8% of FRAX is backed by burning FXS, so FRAX is endogenous, just adjust its algorithm accordingly as needed.

If we want to explain in technical terms, we prefer to use the exergonic and endergonic reactions in thermodynamics, It is related to the change of Gibbs Free Energy it may cause to a system.

Or you can simplify this concept to chemical exothermic/endothermic ) reaction, which refers to the change in enthalpy - the biggest reason why LUNA crashed was because it was exothermic, and it also nuked other markets.

Congress may have several motives. The first motivation may be to clear the way for CBDC, a topic we have written It has been discussed, and an article will be published to discuss it in depth.

Anyway, the idea that a CBDC would compete directly with a Stablecoin for a completely different use case is stupid. Quite the contrary, a robust stablecoin ecosystem will only enhance the utility of a CBDC.

Another motive of Congress may be more altruistic doctrine, namely preventing another Luna/UST-style crash. If that's the case, it might be a little harder to blame Congress' intentions. Terra's debacle was truly horrific, many people were badly damaged, and no one wants a repeat of the tragedy.

The use of the word "endogenous" may be just a friendly reminder that similar UST (mainly backed by LUNA) is singled out, but it might be hard to achieve with such convoluted vocabulary. At the time of the crash, Terra was still in the process of making its stablecoin backed by exogenous collateral like Bitcoin, but the hammer of fate struck quietly before Terra could achieve its goal.

Jurisdiction-related issues are also of concern. Although the United States has actually taken many actions, it is far from clear whether the United States really has the legal power to supervise companies in other countries. Why does the United States have such power? Arguments in the US legal system do not stand up to scrutiny, as demonstrated by SEC Chairman Gary Gensler's absurd power grab.

BlockBeats Note: According to reports, US SEC Chairman Gary Gensler has repeatedly stated publicly that he will continue to expand the SEC Power to fully supervise the encryption market.

If the bill does pass into law, one of its main effects will be to weaken the United States. It is in the national interest of the United States to keep stablecoin innovation within the United States. Preserving all of DeFi denominated in USD is a matter of national security. The U.S. reaps many benefits from dollar dominance, so promoting a healthy ecosystem of dollar stablecoins is the best option for the U.S. to extend that power into the new economy. Scaring away innovators who want to build a dollar stablecoin is a direct threat to American prosperity.

Stablecoin is also one of the hottest areas for innovation, combining cutting-edge technology and "product-market fit" "(PMF). Putting restrictions on stablecoin innovation will really only drive innovators to jurisdictions that don't care about American bullshit. Stablecoin experimental innovation will not stop, but its headquarters will be established in areas outside the jurisdiction of US law enforcement. Getting Frax Finance founder Sam Kazemian to build in the US was a top priority!

Other than that, it's all kind of silly. Cheaters aside, no one trying to build a stablecoin wants it to fail. The real builders pay attention to Terra and learn the lessons to prevent similar situations from happening. They don't need lawmakers to tell them UST is an unsound Ponzi scheme. They are busy working on a real working stablecoin formula and building on it.

If Congress does ban "design flawed" Stablecoins, is that a bad thing ? This may be preferable to enacting a blanket ban. However, the definitions of "endogenous" and "exogenous" are very confusing, and there may be various unimaginable gray areas in the middle. We also all know that regulators are always eager to test how far they can stretch their hands, so under such laws, we can expect good projects to suffer.

In fact, if the definition of "endogenous" in the draft is strictly followed, the dollar itself can also be directly banned by Congress. After all, the U.S. dollar itself is also a stable calculation based on poor Token economics.

If someone for some reason wants to create an extremely unstable clone of the UST, it is also easy for him to exploit legal loopholes. Launching UST in the name of Terra may be illegal, but using a different multisig and website technically counts as an "exogenous project". Expect the entire effort of U.S. policymakers to be easily overturned by a Lionel Hutz-level lawyer in the Simpson family.

With many concerned about the impact on the yet-to-be-launched crvUSD, Curve reiterated that, as ever, the only victim of this legislation will be the United States itself.

The sad thing about it all is that trying to shoehorn DeFi into the framework of TradFi is exactly the opposite of what could be enacted to improve the industry as a whole...