Josh Gottheimer, a New Jersey Representative, presented Tuesday an initial draft of legislation that aims to define stablecoins. Critics consider them susceptible to manipulation and bad actors, as well as collapse due insufficient reserve capital.

Gottheimer’s office released Monday’s discussion draft. It proposes to classify certain digital currencies “qualified” stablecoins, if they are redeemable on a one for one basis in dollars.

A federally-backed bank could issue qualified stablecoins, or another non-bank which agrees to keep at least 100 percent of U.S. dollar reserves consisting of U.S. bonds or other assets the Office of the Comptroller of the Currency considers suitable cash collateral.

Gottheimer, a Democrat said that he didn’t believe we should stifle the innovation on the crypto currency markets.

Gottheimer’s bill, still awaiting input from Capitol Hill, and crypto industry, is likely to be the first attempt by Congress and the Biden Administration to create a new market.

Gottheimer stated that Nellie Liang (an undersecretary of the Treasury responsible for leading regulatory efforts) was in support of his plan last week when she presented before the House Financial Service Committee.

He said, “We have been engaged with Treasury and Blockchain Association and many businesses in this space,”

Tether, Circle Internet Financial and Circle Internet Financial are some of the most popular stablecoins. According to proponents, stablecoins combine the convenience and speed of volatile cryptocurrency with the stability offered by national currencies such as the U.S. Dollar.

Many stablecoin issuesrs have a reserve of dollars that they use to protect the cryptocurrency’s worth. However, this pool is not sufficient to guarantee all requests for redemption for traditional fiat currencies. A spike in redemptions or a “run” by stablecoin issuers could cause bankruptcy for the issuer, and lead to a cascade of insolvencies.

Dante Disparte (Circle’s chief strategist officer) said that “We appreciate the leadership of Representative Gottheimer” in an email statement. To ensure long-term competition and flexibility in how dollars are moved in the 21st-century, it is important to support both bank and nonbank innovation in the payment system.

Gottheimer’s bill represents Washington’s attempts to regulate the cryptocurrency market.

In November, the Biden administration urged Congress for a variety of laws to be passed and to work with regulatory agencies in order to ensure stablecoins are not a risk to society.

In particular, President’s Working Group on Financial Markets proposed that banks covered by Federal Deposit Insurance Corp. be limited to stablecoin issuance in order to provide ongoing supervision, prudential standards, and easy access to government safety nets if required.

Industry reps resisted that suggestion and said that the majority of stablecoins that have been deemed most valuable around the globe are issued by banks. In light of the report’s findings, both the Senate and the House Democrats are working hard to create crypto statutes. Senator Cynthia Lummis (R-Wyo.) is expected to present a significant crypto bill sometime this month.

Due to competing bills, urgent domestic priorities and fragile geopolitics it may take several months before legislators are able gather enough support for any single bill that they can send it to President Joe Biden.