New Stablecoin Bill Draft Released by US House Committee

On December 3rd, the US House Financial Services Committee released a new draft bill titled the “Stablecoin Tethering and Bank Licensing Enforcement Act.” If passed, the bill would require stablecoin issuers to obtain a banking charter and approval from the Federal Reserve before issuing any stablecoins.

But why is this bill being proposed? Stablecoins have become increasingly popular in recent years, with some estimates putting their market capitalization at over $12 billion. These digital assets are designed to maintain a consistent value, often tied to a fiat currency like the US dollar. This makes them useful for various purposes, including facilitating transactions and serving as a hedge against cryptocurrency volatility.

However, the fact that stablecoins are not backed by any tangible assets has raised concerns from regulators. There is a risk that these coins could become a new form of systemic risk, with their value potentially plummeting if the issuer experiences a financial crisis. In addition, stablecoins could be used for nefarious purposes such as money laundering or terrorism financing.

The new bill aims to address these concerns by imposing stricter regulations on stablecoin issuers. Under the proposed legislation, issuers would be required to obtain a banking charter from a state or federal regulator and seek approval from the Federal Reserve before issuing any stablecoins.

The bill would also require stablecoin issuers to provide ongoing documentation and regular audits to ensure that their stablecoin remains fully backed by a reserve of “permissible assets.” These include US dollars, Treasury securities, and other instruments that the Federal Reserve deems acceptable.

Perhaps most significantly, the new legislation would impose criminal and civil penalties on issuers that violate these rules. This could include fines and imprisonment, as well as the possibility of having their charter revoked if they fail to comply with the Federal Reserve’s oversight.

Unsurprisingly, the proposed legislation has already generated significant pushback from the cryptocurrency community. Some critics argue that the bill could stifle innovation and create unnecessary barriers to entry for new stablecoin projects. Others have criticized the idea of requiring stablecoin issuers to obtain a banking charter, arguing that this could undermine the decentralized nature of cryptocurrencies.

Despite these criticisms, however, there are reasons to believe that the proposed legislation could benefit the industry in the long run. For one thing, it could help to legitimize stablecoins in the eyes of regulators and the broader financial system. This could lead to increased adoption of stablecoins for legitimate purposes, as well as greater investor confidence in the asset class.

In addition, the new regulations could help to weed out fraudulent or poorly managed stablecoin projects. By requiring issuers to undergo stricter oversight and documentation, the bill would make it harder for bad actors to operate in the stablecoin space. This could ultimately lead to a more stable and trustworthy stablecoin market.

Of course, there are also potential drawbacks to the new legislation. For one thing, it could lead to a concentration of power in the hands of a few large stablecoin issuers, as obtaining a banking charter and gaining approval from the Federal Reserve would be a significant barrier to entry for newcomers.

In addition, requiring stablecoin issuers to hold reserves of only “permissible assets” could limit their ability to innovate and explore new models for creating stablecoins. This could stifle innovation in the space and impede the development of new and useful decentralized financial products.

Overall, it remains to be seen whether the Stablecoin Tethering and Bank Licensing Enforcement Act will be passed into law. However, regardless of its fate, its proposal suggests that stablecoins are increasingly being viewed as a legitimate and important part of the digital asset landscape. As the market continues to evolve and mature, it will be fascinating to see how stablecoins and their regulation continue to develop.