New Stablecoin Bill Raises Concerns Among the Crypto Community

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New Stablecoin Bill Raises Concerns Among the Crypto Community

For years, the uncontrolled landscape of cryptocurrencies drew innovators and charlatans interested in their potential. The same setting is now drawing legislators.

Following the Office of the Comptroller of the Currency’s (OCC) July instructions to financial institutions on crypto custody, a new measure aimed at regulating corporations that produce stablecoins was submitted in Congress last week. Unlike the OCC advisory, which was well accepted, the proposed measure has enraged the crypto community.

Key Takeaways

  • The STABLE Act proposes to regulate stablecoin issuers by forcing them to get bank charters and deposit reserve money with the Federal Reserve equal to the value of their stablecoin issuance.
  • Proponents of the measure argue that stablecoins must be regulated since they behave like money, while opponents argue that the bill stifles innovation by imposing onerous rules on stablecoins.
  • Stablecoin regulation is anticipated to continue in the future as the market for such cryptocurrencies increases.

What Is the STABLE Act?

The STABLE Act, proposed by three U.S. legislative representatives headed by Rep. Rashida Tlaib (D-Mich.), requires stablecoin-issuing enterprises to get a banking charter and observe “suitable” banking standards in their area. It also requires them to have reserves at the Federal Reserve equal to the dollar value of their stablecoin issuance and to be audited on a regular basis to verify compliance. According to the press release, the purpose of these rules is to safeguard low and moderate income (LMI) customers from unscrupulous coin issuers.

Under current US regulations, entities that produce stablecoins, or coins with infrequent and large price fluctuations, act as trust firms, fiduciaries, and agents. Stablecoin issuers are not obliged to seek banking licenses or deposit cash with the Federal Reserve in order to back up their currencies. Following the 2008 financial crisis, banks were exposed to an increasing number of financial restrictions and expenditures, which impacted their profitability and operations.

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Why Is the Crypto Community Against the STABLE Act?

The law has been condemned by prominent stablecoin issuers as a “major step backwards” for digital currency innovation in the United States. Jeremy Allaire, CEO of Circle, a Boston-based payments firm that issues the USDC stablecoin, said in an emailed statement to online publication Coindesk that the proposed bill was “inconsistent with the goals of supporting innovation in the fair and inclusive delivery of payments that comes from stablecoins.”

The regulation, according to Kristin Smith, CEO of crypto advocacy group Blockchain Association, will “strengthen the position of the most powerful financial institutions, while overlooking two core promises of decentralized networks: the opportunity to put more power in the hands of individual consumers and to catalyze innovation across payments and other financial services.”

The charity Coin Center claimed in a post that the risks for stablecoin-issuing transmitters are substantially lower than for conventional money transmitters since blockchains are public tools that can be used to audit the numbers and addresses of such currencies.

“Any company that wants to issue anything that moves and speaks like money or like a deposit should be regulated like a depository institution,” said Rohan Grey, a bill consultant and assistant professor at Oregon’s Willamette University College of Law.

Why Are Stablecoins a Regulatory Target?

Stablecoins, as the name implies, have a steady value and do not experience the erratic price variations that are common in cryptocurrency trade. They are often backed by a basket of products that may comprise a combination of cryptocurrencies, assets such as gold, and fiat currency. Stablecoins are digital currencies that are backed by centralized authorities or organizations and do not fluctuate in value.

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Libra, a planned cryptocurrency by Facebook, Inc. (FB), is an example of a digital money. The market for stablecoins is projected to develop in the future as more governments and companies issue or consider issuing digital currencies. Regulation will come later. However, it is still too early to assess and quantify the economic effect of stablecoins (or the qualifications of their issuers).

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