Three U.S. law-makers have introduced a bill that will force stablecoin issuers to obtain a banking charter (or license) and approval from the Federal Reserve before they can issue stablecoin.
Started by Representative Rashida Tlaib, with the support of Representatives Jesús García and Stephen Lynch – all Democrats – the proposed law will also require issuers to get prior approval from the Federal Deposit Insurance Corporation (FDIC ) and other bank regulators.
It will require any stablecoin issuers to have FDIC insurance or “otherwise maintain reserves in the Federal Reserve to ensure that all stakes can be easily converted into US dollars, as required.”
Entitled ‘The Stablecoin (Stable) Bank Enforcement and Licensing Act,’ the draft law has drawn widespread criticism from proponents of cryptocurrency, with many viewing it as a brazen attempt to stifle technological development.
But the sponsors of the measure have a different conviction. Tlaib argues that the designed law would “protect consumers from the risks posed by emerging digital payment instruments, such as Facebook Facebook and other stablecoins currently offered in the market, by regulating their publishing and related commercial activities. ”
Stablecoins are virtual currencies backed by another asset or basket of assets. They can be backed individually by the likes of the US dollar, euro or British pound or even bonds. Stablecoins are designed primarily to limit the effect of price volatility on the coin itself, compared to a ‘fixed’ asset, against which it is pegged. The most popular stablecoins include tether (USDT), USDC, and gemini dollar (GUSD).
“We cannot outsource the issuance of American currency to private entities and the Standing Act guarantees that our regulators will be able to effectively oversee the application of this new technology,” Lynch said in a press release.
Broad Criticism
The bill effectively puts stablecoin issuers under the direct supervision of the Federal Reserve. That’s partly because it “explicitly defines fixedcoins as deposits under federal law,” according to to Rohan Gray, Willamette Law assistant professor, who is also pushing for a ban on goals. Gray ran a series of propaganda tweets on December 3 trying to clean up the Standing Act.
Many in the crypto industry were on hand to challenge not only Gray’s claims, but also to question the logic, or lack thereof, of the Slave Representative’s attempt to regulate digital assets. Jeremy Allaire, co-founder and chief executive of Circle, USDC’s stablcoin publishers, denied the legislation designed in eight post thread on Twitter. He said:
The Standing Act would represent a huge step back for digital currency innovation in the United States, limiting the accelerating progress of the blockchain and fintech industry.
Allaire added that “any action of Congress in this area should be focused on embracing, investing in and supporting the incredible speed of open innovation happening with fixedcoins and blockchain infrastructure.”
Erik Voorhees, CEO of Shapeshift, opined: “Poor – crypto is the antithesis of all the banking problems you correctly point out. Let’s not force crypto to act like the banks might? (and indeed it cannot, and will not). ”
Former Coinbase lawyer Reuben Bramanathan noted: “The #STABLEAct is a confusing attempt to regulate perceived harm not actually caused by the technology, but which, ironically, is inherent in the current financial system that cryptocurrencies are designed to replace. “
What do you think and Rashida Tlaib’s planned law on fixedcoins? Share your thoughts in the comments section below.
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