What requirements does the proposed bill, Stablecoin Transparency Act, possess for Stablecoins?

The Stablecoin Transparency Act was presented in front of the Congress chamber to make sure stablecoins follow some regulations

Representative Trey Hollingsworth in the house and Senate Bill Hagerty in the upper chamber have collectively introduced a bill designed for stablecoins to obey several conditions and regulations. What would the bill presented by two legislators prevent?

For instance, take the issue related to the topmost stablecoin in the crypto market, Tether, which is stuck in a controversy about whether US dollars completely back it or not. Recent bills would possess requirements that, after being fulfilled, would make sure not to repeat such issues.

Key points of the Stablecoin Transparency Act have been clear from the name itself that a stablecoin would need to be transparent for regulatory authorities and its users. Technicalities of the bill note down as the requirement from stablecoins to be completely backed by US dollars and government bonds.

Stablecoins needed to be backed by a combination of US dollars and securities that have a maturity of fewer than 12 months. In addition to that, the act would also compel the issuers of crypto assets, be it Tether (USDT) or Circle (USDC), to publish audited reports showcasing their reserves regularly.

Senator Hagerty, voicing the willingness of consumers to know if and how their funds are safe, said that the people in the cryptocurrency market are sailing through the significance vague and confusion, from the debate where crypto assets are commodities or securities to confirm who is actually in charge of regulating them.

As the definition goes, stablecoins are digital assets backed by fiat currency, US dollar or Euro, etc. It follows a simple idea of having a $1 bill in account for every circulating stablecoin so that anyone can redeem the coin if they or whenever they want.

However, Tether has been tasked by the New York Attorney General’s office for spreading the perception, which stated that the claim of stablecoin issuer that US dollars completely backed its digital currency was a lie. Later, when Tether finally issued reports regarding the holdings and every other detail in 2021, a significant amount of reserves in either cash or equivalents to cash like money market funds or substantial holdings like bonds, secured loans or crypto investments.

As the report showed, some investments made Tether an amount of profit that could make the firm less liquid in the situation of a digital bank run. On top of that, it has investments in bitcoin and other cryptos, which could reduce its reserves value whenever the price of digital assets goes down. Such situations could sink the value of USDT.

But now, the bill would have the measures that could be taken to minimize the ill effects and doubts regarding the stablecoins, their value and transparency.