Washington is expected to have the most pro-crypto Congress yet and support from the top with President-elect Donald Trump’s many promises to crypto.  
It will take about three to four months for lawmakers to get settled in, but afterward, they will likely “hit the ground running,” said Ron Hammond, director of government relations at the Blockchain Association. 
U.S . lawmakers will get another chance to pass cryptocurrency legislation as momentum might be on the industry's side to help bills gain traction in the new year.
Washington is expected to have the most pro-crypto Congress yet and support from the top, given President-elect Donald Trump's many promises to crypto.  
The House Financial Services Committee, the likely starting point for that crypto legislation in the new year, will be led by Rep. French Hill, R-Ark. Hill currently leads that committee's digital asset-focused panel and has worked on a number of crypto-related bills, including one to regulate stablecoins and another focused on market structure called FIT21. 
“Should FIT21 and stablecoin legislation not pass during the lame duck, both bills will be a top priority for me in the 119th Congress," Hill said in an emailed statement to The Block. 
It will take about three to four months for lawmakers to get settled in, but afterward, they will likely "hit the ground running," said Ron Hammond, director of government relations at the Blockchain Association, in an interview with The Block.
"We will see a reintroduction of a lot of bills that we are very, very familiar with," Hammond said. 
Stablecoin
Lawmakers in the House have been trying to pass a stablecoin bill for years. House Financial Services Committee Chair Patrick McHenry, R-N.C., retiring in January, has been working with top Democrat Maxine Waters, D-Calif. To create a regulatory framework for stablecoins since 2022. Waters will again be the ranking Democrat of that committee.
Their stablecoin bill advanced out of the Republican-led committee last year but has not gained traction. At the time, Waters called the bill "deeply problematic" due to a provision that allows state regulators to approve stablecoin issuances without Federal Reserve input.
Hill could decide to reintroduce the House version of the #stablecoin bill, but other lawmakers could also take up the mantle, Hammond said. 
"It will likely start in the House again and we will probably see that moving forward because the Senate is going to be very tied up in the early part of the year with nominations and such," Hammond said. 
Some changes could be made to the bill. A sticking point has been divvying up regulatory authorities between state and federal. A reintroduced bill could be more "state friendly" in a Republican-led Congress, Hammond said. 
On the Senate side, Sen. Bill Hagerty, R-Tenn., unveiled a discussion draft of legislation in October that would create a regulatory framework for stablecoins. It closely resembles the House version. 
When asked if a stablecoin bill could be passed into law in 2025, DeFi Education Fund CEO Miller Whitehouse-Levine said it was a slim chance.
"Hope springs eternal," he said, giving the bill a 25% in 2025 and a 75% chance of passing in 2026.
FIT21
Current House Financial Services Committee Chair Patrick McHenry, R-N.C., led efforts to help the House pass FIT21. The bill would grant more power and funding to the Commodity Futures Trading Commission to oversee crypto spot markets and "digital commodities," particularly bitcoin and sets parameters for the Securities and Exchange Commission. 
It's unclear where FIT21 could go next, Hammond said, in part because the SEC and CFTC will be different in the new year. Trump tapped former SEC Commissioner Paul Atkins to lead the SEC, who has shown a friendly approach to crypto. 
"Potentially a lot of these things could be done on the regulatory side versus legislative side," the Blockchain Association's Hammond said. 
There could be room for some changes in FIT21 on how decentralization is defined, said the DeFi Education Fund's Whitehouse-Levine.
"FIT21 is using the decentralization test to try and differentiate between transactions that are appropriately subject to enhanced disclosure requirements given the nature of those transactions and transactions that are not," Whitehouse-Levine said. "The dividing line that FIT21 proposes is one around whether the transactions are involving a project or a network that is decentralized or not."
A companion bill, the same bill introduced in both chambers of Congress, has not been introduced on the Democratic-controlled Senate side, but Whitehouse-Levine said that could happen next year.
"I could easily see a companion bill," he said.
When asked the likelihood of FIT21 becoming law in 2025, Whitehouse-Levine said it was unclear.
"Congress is going to have many, many competing priorities next year," he said. "That's going to include major tax related legislation, major border related legislation, etc. A specific bill aside, there's going to be intense competition for floor time that I think will affect the prospects of all crypto bills, be they FIT21 or others."
'Tax Super Bowl'
Taxes may be the hot topic in the new year as lawmakers face a deadline for when Trump's Tax Cuts and Jobs Act expires at the end of next year. 
"That's the idea basically, that everyone is gearing up for what we're calling the 'Tax Super Bowl,'"  said Alison Mangiero, executive director at the Proof of Stake Alliance, an advocacy group for technology around staking.
One of those bills that could be included in the TCJA is a measure introduced by Reps. Wiley Nickel, D-N.C., and Drew Ferguson, R-Ga., would clarify that staking rewards should only be taxed at the time of sale. POSA supports that bill and Mangiero said she is hopeful language from it will be included in renewing the TCJA. 
Other factors
The idea of creating a strategic bitcoin reserve has been circulating at both the federal and state levels. Ahead of elections in November, Trump vowed to create a strategic bitcoin reserve. Republican Sen. Cynthia Lummis of Wyoming has a draft bill that would direct the U.S. Treasury to buy one million bitcoin over a period of five years.
Lummis' bill is likely to be reintroduced, Hammond said. 
"I don't see it going forward too much, at least at this stage," Hammond said, adding that the bill does not have a companion in the Senate and does not have bipartisan support. 
Another factor that could affect crypto legislation is Warren's new spot as the ranking Democrat of the influential Senate Banking Committee. 
"It certainly doesn't help," Whitehouse-Levine said. "Obviously she is no fan of the industry." 
Warren won't be as powerful as former Senate Banking Committee Chair Sherrod Brown, Hammond said. Brown had been critical of crypto and called for a crackdown on the use of cryptocurrency to fund terrorism and evade sanctions and has told federal agencies to use their current authority to go after bad actors in the industry. 
Warren could influence what is called a "four corners sign off," meaning when the chair and ranking member of relevant House and Senate committees get together to agree on certain measures, it can then go into a bigger piece of legislation, Hammond said. 
"If you have one hold up, that means that piece of legislation is not getting into a large must pass bill and Sen. Warren could easily be that hold up," Hammond said. 
#GrayscaleHorizenTrust

HyperLiquid Exchange, a layer-1 blockchain platform specializing in perpetual futures trading, is facing significant pressure as it records a withdrawal flow of 60 million $USDC , the highest in its history. Sources indicate that hackers linked to North Korea may be "testing the weaknesses" of this platform.

Key Events

Withdrawal of 60 million USDC: As of 10:00 UTC on Monday, HyperLiquid had lost 60 million USDC, according to data from Hashed Official. This is the #stablecoin second largest coin in the world, used as collateral on this platform.

RLUSD (Ripple USD) was launched on December 17, 2024 and has already received approval from the New York Department of Financial Services (NYDFS). Like all stablecoins, this coin aims to maintain a 1:1 value against the dollar and at first glance does not differ from other similar coins.

The purpose of this article is to understand what changes Ripple's RLUSD will bring to the cryptocurrency market.

Key Takeaways

• A stablecoin is a cryptoasset pegged to another asset, such as fiat currencies or precious metals. 

• Stablecoins are designed to maintain a relatively stable price so that users can avoid the volatility risks common in the crypto markets.

• There are three types of stablecoins: fiat-backed, crypto-backed, and algorithmic.

• Due to their practical use and large market capitalization, regulators are beginning to take a closer look at stablecoins.

Introduction

Cryptocurrencies aren’t all about volatility. In fact, stablecoins are specifically designed to maintain a fixed price. In an industry where coins and tokens can crash overnight, there is a massive demand for currencies that mix blockchain benefits with the ability to track a more stable asset. If you haven’t started using stablecoins while trading or investing, it’s worth learning more about them as well as the benefits and drawbacks they bring.

What Is a Stablecoin in Cryptocurrency?

Stablecoins are digital assets that track the value of fiat currencies or other assets. For example, you can purchase tokens pegged to the dollar, euro, yen, and even gold and oil. A stablecoin allows the holder to lock in profits and losses and transfer value at a stable price on peer-to-peer blockchain networks.

Bitcoin (BTC), Ether (ETH), and other altcoins have historically been volatile. While this provides many opportunities for speculation, it does have drawbacks. Volatility makes it challenging to use cryptocurrencies for day-to-day payments. For example, merchants may take $5 in BTC for a coffee one day but find that their BTC is worth 50% less the next. This makes it challenging to plan and operate a business that accepts crypto payments.

Before, crypto investors and traders had no way to lock in a profit or avoid volatility without converting crypto back into fiat. The creation of stablecoins provided a simple solution to these issues. Today, you can easily get in and out of crypto volatility using stablecoins like TrueUSD (TUSD).

How Do Stablecoins Work?

Creating a coin that tracks another asset’s price or value requires a pegging mechanism. There are multiple ways to do this, and most rely on another asset acting as collateral. Some methods have proved more successful than others, but there is still no such thing as a guaranteed peg.

Fiat-backed stablecoins

A fiat-backed stablecoin keeps a fiat currency, such as USD or GBP, in reserves. For example, each TUSD is backed by $1 held as collateral. Users can then convert their fiat to a stablecoin and vice versa at the pegged rate.

Crypto-backed stablecoins

Crypto-backed stablecoins work in a similar way to fiat-backed stablecoins. But instead of using dollars or another currency as reserve, we have cryptocurrencies acting as collateral. As the crypto market is highly volatile, crypto-backed stablecoins usually over-collateralize the reserves as a measure against price swings.

Crypto-backed stablecoins use smart contracts to manage minting and burning. This makes the process more reliable as users can independently audit the contracts. However, some crypto-backed stablecoins are run by Decentralized Autonomous Organizations (DAOs), where the community can vote for changes in the project. In this case, you can get involved or trust the DAO to make the best decisions.

Let’s look at an example. To mint 100 DAI pegged to USD, you will need to provide $150 of crypto as 1.5x collateral. Once you have your DAI, you can use it however you want. You could transfer it, invest it, or simply keep it as is. If you want your collateral back, you’ll need to pay back the 100 DAI. However, if your collateral drops below a certain collateral ratio or the loan’s value, it will be liquidated.

When the stablecoin is below $1, incentives are created for holders to return their stablecoin for the collateral. This decreases the supply of the coin, causing the price to rise back to $1. When it’s above $1, users are incentivized to create the token, increasing its supply and lowering the price. DAI is just one example, but all crypto-backed stablecoins rely on a mix of game theory and on-chain algorithms to incentivize price stability.

Algorithmic stablecoins

Algorithmic stablecoins take a different approach by removing the need for reserves. Instead, algorithms and smart contracts manage the supply of the tokens issued. This model is much rarer than crypto or fiat-backed stablecoins and more challenging to run successfully.

Essentially, an algorithmic stablecoin system will reduce the token supply if the price falls below the fiat currency it tracks. This could be done via locked staking, burning, or buy-backs. If the price surpasses the value of the fiat currency, new tokens enter into circulation to reduce the stablecoin’s value.

What Are the Advantages of Stablecoins?

Stablecoins are versatile and powerful tools for investors, traders, and cryptocurrency users. Their main strengths include the following: 

1. Stablecoins can be used for day-to-day payments. Businesses, and individuals value stability. Due to its volatility, cryptocurrencies haven’t achieved widespread use for day-to-day payments. Large stablecoins have a track record for maintaining their peg, making them suitable for daily use.

2. Stablecoins have the benefits of being blockchain-based. You can send a stablecoin to anyone globally who has a compatible crypto wallet (which can be created for free in seconds). Double-spending and false transactions are also almost impossible to run into. These qualities make stablecoins incredibly versatile.

3. Stablecoins can be used by traders and investors to hedge their portfolios. Allocating a certain percentage of a portfolio to stablecoins is an effective way to reduce overall risk. Your portfolio as a whole will be more resistant to market price swings, and you will also have funds on hand in case a good opportunity comes up. You can also sell crypto for stablecoins during a market downturn and repurchase them at a lower price (i.e., shorting). Stablecoins allow you to enter and exit positions conveniently, without the need to take money off-chain.

What Are the Disadvantages of Stablecoins?

Despite their potential to support widespread cryptocurrency adoption, stablecoins still have limitations: 

1. Stablecoins aren’t guaranteed to maintain their peg. While some large projects have a good track record, there have also been many projects that have failed. When a stablecoin has constant issues maintaining its peg, it can lose its value dramatically.

2. Lack of transparency. Not all stablecoins release full public audits and many provide only regular attestations. Private accountants carry these out on behalf of the stablecoin issuers.

3. Fiat-collateralized stablecoins are usually more centralized than other cryptocurrencies. A central entity holds the collateral and may also be subject to external financial regulation. This gives them significant control over the coin. You also need to trust that the issuer has the reserves they claim to have. 

4. Crypto-collateralized and uncollateralized coins rely heavily on their community to function. It’s common to have open governance mechanisms in crypto projects, meaning that users get a say in the development and running of each project. As such, you need to get involved or trust the developers and community to run the project responsibly.

Examples of Stablecoins

Crypto-backed stablecoin: MakerDAO (DAI)

DAI is a crypto-backed stablecoins that tracks USD on Ethereum. The coin is managed by the MakerDAO community that holds the governance token MKR. You can use MKR to create and vote on proposals to change the project. DAI is over-collateralized to deal with the volatility of crypto, and users enter into Collateralized Debt Positions (CDPs) that manage their collateral. The whole process is run via smart contracts.

Fiat-backed stablecoin: TrueUSD (TUSD)

TUSD is an independently verifiable dollar-pegged stablecoin. It is the first stablecoin to programmatically control minting with instant on-chain verification of USD reserves held off-chain. TUSD's reserves are monitored using Chainlink Proof of Reserve so that holders can autonomously verify that their TUSD is backed by USD held in reserves.

Are Stablecoins Regulated?

Stablecoins have caught regulators’ interest worldwide due to their unique mix of fiat and crypto. As they are designed to maintain a stable price, they are useful for reasons other than speculation. They can also facilitate high-speed transactions internationally at a low cost. Some countries are even experimenting with creating their own stablecoins. As a stablecoin is a type of cryptocurrency, it will likely fall under the same regulations as crypto in your local jurisdiction. Issuing stablecoins with fiat reserves may also need regulatory approval.

Closing Thoughts

It’s hard to find an investor or trader nowadays who hasn’t held a stablecoin at some point. Stablecoins are often held in crypto exchanges so that traders can quickly capitalize on new market opportunities. They're also very useful to enter and exit positions without having to cash out into fiat. Apart from trading and investing, stablecoins can be used for making payments and international transfers.

Even though they are an integral part of crypto and have enabled the creation of a new financial system, you shouldn’t underestimate the risks. We’ve seen stablecoin projects with failing pegs, missing reserves, and lawsuits. So while stablecoins are incredibly versatile tools, do bear in mind that they're still cryptocurrencies and hold similar risks. You can mitigate risks by diversifying your portfolio, but make sure to do your own research before investing or trading, and don't invest more than you can afford to lose.

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