Among a rich range of anxieties both for the crypto industry and the global economy at large, the summer of 2022 will be remembered as the time when t
Among a rich range of anxieties both for the crypto industry and the global economy at large, the summer of 2022 will be remembered as the time when the stablecoins proved themselves to be not so stable and thus came into the focus of regulators’ attention.
The shock of the TerraUSD (UST) depegging in May opened a season of heated-up discussions on stablecoins around the world. The top financial officials from the Group of Seven (G7) largest advanced industrial economies had to send their private jets to the 40,000-populated German town of Koenigswinter to push the international body of the Financial Stability Board into speeding up the crypto regulation process. The Chinese government signaled its desire for even tighter regulations on cryptocurrencies and stablecoins. Japan played proactively limited stablecoin issuance to banks and trust companies.
In the United States, an immediate reaction came from The Congressional Research Service (CRS), which dubbed the USTC crash as a “run-like” scenario and emphasized that there is a significant risk of such failure repetitions due to the existing policy lacunas. And though some, like the United States Treasury Secretary Janet Yellen, refused to follow such an alarming tone, in the following months, the American crypto community evidenced several major initiatives to regulate the stablecoins.
What do the Lummis-Gillibrand and Gottheimer bills suggest?
In the first week of June, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D- NY) finally introduced the long-awaited 69-page Responsible Financial Innovation Act. The Act, commonly shortened to a “crypto bill” headline, aspired to become the broad comprehensive framework for crypto at large, dealing with a range of subjects such as banking, the tax treatment of digital assets, principal government agencies’ jurisdictions and interagency coordination.”
Among this batch of issues, the bipartisan bill includes a fragment on stablecoin regulations, represented in Sections 601 and 602. As obvious as it may sound, the most important line suggests the Required Payment Stablecoin Assets issuer to hold no less than 100 percent of the face amount of the liabilities that peg the coins. The backing assets must be held in balances at a Federal Reserve bank (including a segregated balance account), or in the case of foreign reserves, at a foreign central bank, “in a special, custodial or trust account.”
The guidelines also require a pretty standard range of reporting measures, from the public disclosure of a summary description of the assets backing the stablecoin, the value of these assets and their number, to periodic reports to the Federal banking agency or state bank supervisor. Non-depository institutions could issue stablecoins as well.
Related: Built to fall? As the CBDC sun rises, stablecoins may catch a shadow
The Stablecoin Innovation and Protection Act of 2022, published by Senator Josh Gottheimer’s (D-NJ) office, contains nine pages. It introduces the concept of “qualified stablecoin:” redeemable on demand, on a one-to-one four basis for U.S. dollars and issued by an insured depository institution or a nonbank qualified stablecoin issuer. A minor difference from the Lummis-Gillibrand proposition here is a less wide range of the assets to be used as collateral: only U.S. dollars or Federal government securities should be used unless the regulator decides otherwise.
The subtle yet important difference between the two bills is that Gottheimer’s draft specifies the legal status of “qualified stablecoins” as neither securities nor commodities and, as such, falls under the regulatory authority of the Office of the Comptroller of the Currency, not the Securities Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFRC). The latter two will still preserve their control when it comes to other cryptocurrencies.
Both the Responsible Financial Innovation Act and The Stablecoin Innovation and Protection Act of 2022 could be deemed as crypto-friendly, with the second one implying a getaway from the SEC and CFTC scrutiny. In their moderate tone, both bills look promising in contrast to the President’s Working Group on Financial Markets calls to limit the stablecoin issuance to banks insured by the Federal Deposit Insurance Corp.
“Healthy discussion” and reasons for optimism
Speaking to Cointelegraph, Denelle Dixon, CEO at Stellar Development Foundation — a backer of Stellar network — notes that the range of stablecoin legislative initiatives doesn’t limit itself to Lummis-Gillibrand or Gottheimer bills. There is also the bipartisan Digital Commodity Exchange Act of 2022 and Senator Pat Toomey’s Trust Act of 2022. While the first one doesn’t mention the word “stablecoin,” the second one more or less combines the features of the recent bills by privileging the regulatory role of the Office of the Comptroller of the Currency and laying an emphasis on disclosure…
cointelegraph.com