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The introduction of a regulatory framework for stablecoins in the U.S. could set the stage for long-promised financial innovation, but bipartisan support for the initiative may prove elusive, says Moody’s Investors Service in a new report.

The rating agency reported that draft U.S. legislation, which seeks to create a much-needed regulatory framework for stablecoins, has been tabled.

Among other things, it would require that cash-like digital assets be issued either by a bank or a registered non-bank. It would also impose strict reserve requirements, and a series of standards for disclosure, asset segregation, insurance, and redemption mechanics.

Additionally, the bill would impose a two-year ban on the issuance of new uncollateralized algorithmic stabloecoins, it noted.

“The adoption of a stablecoin bill would bring much-awaited regulatory clarity for the U.S. digital assets industry and could foster innovation and financial stability,” it said.

In the current environment, the crypto sector has been hard to regulate under the rules that apply to the traditional financial sector, as they don’t clearly fit into existing asset categories, Moody’s noted.

“Enforcing existing financial regulations on the crypto industry has proved challenging at best,” it said. “In that regard, bespoke digital assets regulatory frameworks are essential to fill the gaps, bring clarity on the legal status of these assets, and avoid regulatory fragmentation within the industry.”

However, Moody’s said that recent Congressional hearings on the role of stablecoins, which were held by the U.S. House Financial Services Committee, “revealed significant political disagreements between the two parties that may make it hard to reach bipartisan consensus on the bill.”

Failure to move ahead with legislation amid stalled Congressional negotiations “could send a negative signal to market participants and investors alike,” it warned — as a number of other jurisdictions have recently begun moving ahead with their own regulations.

The European Union has just passed comprehensive legislation, and the U.K. is finalizing its own reforms that include provisions dealing with stablecoins, Moody’s said.

Additionally, Japan and Singapore now have stablecoin regulations, and Korea is working on a regime that’s expected to come into effect in 2024.

“In this context, in the absence of new digital assets-specific legislation, the U.S. market could become comparatively less attractive for both firms and investors, because innovation generally does not thrive in uncertain regulatory environments,” it said.