​Algorithmic stablecoins are about to be put on ice.

Alright, we're going to dig into algorithmic stablecoins here - if that ain't your cup of tea, that's totally fine.

(We won't be offended if you skip to the next article.)

To those of you who have decided to stick around: welcome, nerds

On Monday we wrote about doing burpies the White House’s 'comprehensive framework' for crypto regulation and development.

What we didn’t mention, was that the latest draft would ban algorithmic stablecoins for two years while the big heads (authorities) figure out how to allow them in a way that doesn’t risk taking down an entire industry.

Which makes sense, many argue that the Terra LUNA collapse started the entire crypto bear market. They don’t want to risk that happening again.

But we’re getting ahead of ourselves…first off, let’s explain algorithmic stablecoins.

Algorithmic stablecoins are digital currencies that are designed to stay tied (or ‘pegged’) to the value of real-word assets, like the U.S. dollar.

But they aren’t actually backed by US dollar reserves - instead they use other digital currencies like Bitcoin, Ethereum, or maybe even LUNA.

They buy / sell / destroy that cryptocurrency based on the supply and demand for the stablecoin they're selling.

So in theory, they’re always worth $1 in value.

The problem comes when a ‘bank run’ happens - more and more people sell the crypto that the digital currency was pegged to until it’s worth zero, making the algorithmic stablecoin behind it, essentially backed by nothing.

(Which is what happened to LUNA in May).

Okay, so what’s the US Government doing about it?

Not much…yet; but they have made a few suggestions.

Prior versions of the bill required stablecoin issuers to maintain a 1:1 reserve for all stablecoins in circulation. So for every $1 of stablecoin, they would need $1 worth of Bitcoin (for example) in reserve.

They also suggested limiting the types of assets that could back them. Bitcoin and Ethereum make sense, some of the riskier coins, not so much.

The stablecoin bill has been in the works for months, but the good news is that the bill could be up for a vote as soon as next week.

Stablecoins are an important part of the crypto world - let’s hope this pans out fairly.

Ok, that's it - pencils down, folks!