What are the 'fatal details' hidden in the new US stablecoin regulatory rules?

The U.S. Senate Banking Committee passed the Stable Coin regulation bill, and the market generally followed the compliance prospects of USDT and USDC, but ignored the two-year ban on AlgorithmStable Coin. This article explores the impact of the ban, regulatory logic, and uncertainty about future developments. (Synopsis: The U.S. Senate passed the "Stable Coin Act GENIUS" with a high vote, and Musk's X coin issuance is in sight? On March 13, the U.S. Senate Banking Committee voted 18-6 to pass the Stable Coin regulatory bill, bringing a landmark regulatory framework to this rapidly growing industry. The market is cheering, and the prospects for mainstream Stable CoinCompliance such as USDT and USDC are clearer. However, a "hidden detail" is rarely discussed – the bill sets a two-year ban on "Stable Coin that relies solely on self-created digital assets as collateral (such as AlgorithmStable Coin)" and requires the Treasury Department to study its risks. Is it because AlgorithmStable Coin has been overshadowed since the UST crash in 2022, or is the market only following good news? Behind this clause, it is worth scrutinizing. What is Stable Coin collateralized by "self-created" digital assets? The term "self-created" is explicitly but ambiguously referred to in the bill. Literally, it refers to the digital assets created by Stable Coin issuers within their own systems to support the value of Stable Coin, rather than relying on external assets such as US dollars, government bonds, or gold. In other words, these Stable Coins are not backed by TradFi assets, but try to maintain price stability by adjusting supply and demand through the Algorithm mechanism and their own tokens. However, the boundaries of the term "reliance only" are not clearly delineated, which sows controversy over the scope of regulatory application. The most classic Stable Coins, such as USDC or USDT, rely on US dollar reserves and are supplemented by transparent auditing, which can maintain a 1:1 payability even in times of high market volatility. Unlike "self-created" Stable Coin, its stability relies entirely on internal design and lacks a safety net for external assets. A typical example is the collapse of UST, when a large number of holders dump UST, the LUNA Token price dumps big, causing Stable Coin to lose support, triggering a "death spiral". Under this model, AlgorithmStable Coin is not only difficult to withstand market shocks, but may also become a source of systemic risk in the market. The vague definition of "self-created" has become a point of contention. If a Stable Coin relies on both external assets and self-created tokens, is it also covered by the ban? This issue directly affects the implementation of subsequent regulations, and also brings development uncertainty to other Stable Coins. Which Stable Coin projects may be affected? The current Stable Coin market can be divided into three categories: Fiat Currency Support, Over-collateralization and AlgorithmStable Coin, which have different design logic and risk characteristics, which directly determine their fate in the bill. Fiat Currency Backed and Collateralized: Safe Zone USDT and USDC: Relying on US dollars and short-term Treasury reserves, high transparency, the bill's asset reserves and audit requirements pave the way for its compliance development. MakerDAO's DAI: generated through over-collateralization of external assets such as ETH and wBTC, with a reserve rate of 150%-300%, MKR Token is only used for governance rather than core support, and there is no regulatory pressure in the short term. Ethena's USDe: The main Collateral of USDe is Ethereum assets such as stETH and ETH, and the governance Token ENA is not directly used as the Collateral of USDe, only used for protocol governance and incentives, and the generation mechanism of USDe is more collateralized and does not belong to the category of "relying only on self-created digital assets". But USDe's stability mechanism involves derivatives hedging and may be considered "unconventional" Stable Coin by regulation. If the regulatory focus is on "derivatives risk" or "non-traditional asset backing", USDe's "delta neutral strategy" (stability mechanism) may be subject to additional scrutiny. AlgorithmStable Coin: The bullseye of the ban AlgorithmStable Coin became the focus of the ban due to its "self-created" nature. They rely on internal token and algorithm mechanisms, external asset participation is extremely low, and risks are concentrated. Here are a few typical cases from the past: UST of Terra: regulating value through LUNA, LUNA as Terra's own token, completely dependent on ecology. The 2022 crash wiped $40 billion off and dragged down multiple decentralized finance protocols. Basis Cash (BAC): Early AlgorithmStable Coin, using BAC and BAS (self-created token) to maintain balance, quickly lost under market fluctuations, the project has long faded out of sight. Fei Protocol (FEI): Relying on FEI and TRIBE (self-created token) regulation, it lost market trust due to depeg problems after being launched in 2021, and its popularity plummeted. The common features of these projects are: value support relies entirely on self-created tokens, external assets are almost absent, and once market confidence is shaken, a crash is almost inevitable. Proponents of AlgorithmStable Coin have shouted the slogan "Decentralization Future", but the reality is that the ability to resist risks is low and has become the focus of supervision. However, there is a gray area in between: many Stable Coins do not rely entirely on "homegrown" assets, but instead adopt a hybrid model. For example: Frax (FRAX): partly dependent on USDC (external assets), partly regulated by FXS (self-created token). If the definition of "self-created" is too strict, the role of FXS may limit it; If it is lenient, it will hopefully be spared. Ampleforth (AMPL): Stable purchasing power through supply and demand adjustment, does not rely on traditional collateral, is closer to flexible coin, and may not be within the bill's definition of Stable Coin. In other words, although the bill refers to Stable Coin, which is "self-created digital asset collateral", the term "relying only" does not clearly define the boundary, leaving the fate of these hybrid projects in the air. If the Ministry of Finance's study defines "self-created" too broadly, mixed-mode projects may be mistakenly damaged; If it is too narrow, it may miss the risk point. This uncertainty directly affects the market's expectations for related projects. Why did the regulator establish this ban? The bill's ban on "self-created" sacrifices has both concerns about reality and hidden expectations for the future. First, systemic risk is a core concern. The UST crash was not only a $40 billion nightmare for retail investor, it also triggered a chain reaction in the Decentralized Finance market and even alarmed TradFi. AlgorithmStable Coin's closed-loop design makes it highly susceptible to getting out of control under extreme conditions, potentially becoming a "time bomb" in the encryption market. Regulators clearly hope to curb this potential threat through a ban. Second, the lack of transparency makes regulation more difficult. Self-created tokens such as LUNA or FEI, whose value is difficult to verify through external markets, operate like a black box, in stark contrast to USDC's public ledger. This opacity not only makes regulation impossible, but also creates hidden dangers for potential fraud. Third, investor protection is a real need. Ordinary users have difficulty understanding the complex mechanism of AlgorithmStable Coin and often mistakenly believe that it is as secure as USDT. Retail investors suffered heavy losses after the UST crash, highlighting the urgency of protecting retail investors from high-risk innovations. Finally, the stability of the coin policy cannot be ignored. The large-scale adoption of Stable Coin may have an impact on the US dollar coin policy. If there is a large amount of money pouring into the unregulated AlgorithmStable Coin, and these Stable Coin lack enough...