On April 19, the US House Financial Services Committee is scheduled to conduct a hearing to debate a draft bill on the regulation of stablecoins, a kind of digital money intended to provide market stability by being tied to the value of another asset. Financial regulators such as the National Credit Union Administration, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency are likely to grant regulatory clearance to stablecoin issuers.
Additionally, according to the drafted legislation, the Federal Reserve Board would be in charge of overseeing non-bank issuers, while the regulators would be in charge of overseeing insured depository institutions and insured credit unions that want to issue stablecoins. A punishment of up to $1 million USD and up to five years in jail might be imposed on anyone who releases stablecoins without the authorities’ consent.
The proposed legislation also aims to place a two-year prohibition on “endogenously collateralized stablecoins” that are not yet in existence at the time the measure is passed. An endogenously collateralized stablecoin is any digital currency that “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”
It is noted in the bill that, “Payment stablecoins are not backed by the full faith and credit of the United States, guaranteed by the United States Government, subject to deposit insurance by the Federal Deposit Insurance Corporation, or subject to share insurance by the National Credit Union Administration.” The hearing will be testified by the New York State Department of Financial Services superintendent Adrienne A. Harris, chief strategy officer of Circle Dante Disparte and consumer reports director of financial fairness Delicia Reynolds Hand.
According to Blockchain Association chief policy officer Jake Chervinsky, neither the Securities and Exchange Commission nor the Commodity Futures Trading Commission presently have the regulatory authorities required to oversee stablecoins. He also added that stablecoins are difficult to classify as securities, and the CFTC is not authorised to regulate spot markets.
Austin Campbell, a managing partner at Zero Knowledge Consulting also backs up a similar opinion to Chervinsky by stating, “The biggest winner of the US regulatory actions and legislative inaction over the past year has been Tether, an offshore stablecoin that provides very little in the way of transparency or consumer protection.” Both Chervinsky and Campbell believe that a moratorium on stablecoin issuers would be detrimental to American interests.
This particular draft bill followed as a result of the numerous stablecoin “depegging” incidents that occurred in the cryptocurrency market over the previous year where some tokens lost stability to the underlying asset. Instances in 2022 such as the Terra-Luna collapse and the momentary fall of the USD coin from $1valuation are clear indicators that a change in regulations was necessary.
Although it is not immediate, the authorities are finally making some amends to stabilise the economy of the country. Whether these amends will turn out to progress well or not is a question that remains.