A growing number of Garden State residents are investing in some type of cryptocurrency, even though most people readily admit they don’t really even know what cryptocurrency is.

In response, a congressman from New Jersey is pushing a plan to regulate one aspect of the cryptocurrency marketplace.

U.S. Rep. Josh Gottheimer, D-N.J. 5th District, has put forth the Stablecoin Innovation and Protection Act of 2022.

Qualified stablecoins

Gottheimer said it’s an effort to put appropriate protections in place for what would be designated as qualified stablecoins, in order to protect consumers and investors.

According to coinbase.com, stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold, while cryptocurrency is a form of decentralized digital money.

Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin, but Gottheimer said with so many new stablecoins coming into existence no one really knows exactly what qualifies as one.

“There’s just no legal definition right now of what a stablecoin is. We just don’t know. So that’s part of the problem, you just don’t know if it’s backed up by anything,” he said.

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Are these coins legit?

Gottheimer pointed out another problem is “every week there’s a new product here that someone is putting out, and the question is, is it a sham, is it a scam or not.”

He said by creating a qualified stablecoin system for investors, they would have an assurance their investment is backed up “either by a bank which is backed by U.S. currency in a qualified stablecoin, or a non-bank, but the non-bank would have to commit to actually having assets to back that stablecoin.”

“What we’re doing is saying here’s how you know it’s safe. If it’s called a qualified stablecoin, you actually know U.S. dollars are behind it so it’s actually a backed product,” said Gottheimer.

The money is gone

He said it’s important to put some regulations in place because “I’ve had a lot of people call my office and call me and say that they lost money, there’s fraud, there’s theft, the money gets stolen they don’t know where it goes.”

The legislation provides the Office of the Comptroller of the Currency with primary oversight authority over qualified stablecoin issuers.

Gottheimer, a member of the House Financial Services Committee, said to help further protect consumers, the Federal Deposit Insurance Corporation would be required to develop a Qualified Stablecoin Insurance Fund to manage the insurance of redemption payments of non-bank issuers.

David Matthau is a reporter for New Jersey 101.5. You can reach him at david.matthau@townsquaremedia.com

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