House Financial Services Committee member and New Jersey Representative Josh Gottheimer has introduced legislation that would have the Federal Deposit Insurance Corporation back stablecoins in a  manner similar to fiat deposits.

In a draft of the Stablecoin Innovation and Protection Act of 2022 released on Tuesday, Gottheimer proposed labeling stablecoins issued by insured depository institutions or certain nonbank issuers as “qualified.” Under this definition, the bill suggests “qualified stablecoins” are neither securities or commodities under U.S. law, and redeemable on demand from the issuer.

In cases of nonbank issuers, the legislation would require the Federal Deposit Insurance Corporation, or FDIC, to set up a Qualified Stablecoin Insurance Fund to insure qualified stablecoin holders can exchange their tokens for U.S. dollars on demand. According to Gottheimer, the bill is aimed at protecting holders from “systemic risk, fraud and illicit financing.”

“The expansion of cryptocurrency offers tremendous potential value for our economy,” said Gottheimer. “But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers.”

He added:

“We shouldn’t stifle innovation in the cryptocurrency market. We should ensure the proper safeguards are in place, and ensure our nation is a leading force in financial technology.”

In addition to the insurance requirements, the Office of the Comptroller of the Currency will largely have the regulatory authority to determine standards and requirements for stablecoin issuers. However, Gottheimer specified that the legislation’s regulatory purview was not intended to extend beyond these qualified stablecoins — the Securities and Exchange Commission and Commodities Futures Trading Commission are “not restricted from examining non-qualified stablecoins and other cryptocurrencies” under the bill.

Representatives from crypto advocacy groups including the Blockchain Association and Digital Chamber of Commerce expressed their support for the legislation. Teana Baker Taylor, the Digital Chamber of Commerce’s chief policy officer, lauded the bill for leveling the playing field between “established stablecoin arrangements and new entrants” in addition to putting the U.S. on the path for a clearer regulatory framework of digital assets.

exciting to see moves by @RepJoshG and others to regulate and license stablecoins by ensuring that they are backed 1:1.

Stablecoins hold huge promise for payments and finance, and regulatory oversight and clarity can give them the trust and safety they need. https://t.co/5CnloWiWFo

— SBF (@SBF_FTX) February 15, 2022

Related: Regulators are coming for stablecoins, but what should they start with?

If approved by both the House and Senate and signed into law by President Biden, the stablecoin bill would go into effect after one year. The Senate Banking Committee is also holding a Tuesday hearing examining the President’s Working Group on Financial Markets’ report on stablecoins released in November.