Stablecoin Regulation: Something To Fear or Welcome? - Defi Dave

legal advice it's just my observations and my conclusions make no mistake there is a fierce debate going on on Capitol Hill about the future of crypto as an industry although more legislators than ever see crypto as a promising Frontier the challenges for the industry remains how can we reach across the aisle to the steps to the Skeptics and come together in a way that will benefit the American economy and bring prosperity to the people fortunately legislation for Fiat facts are commonly referred to as payment stable coins has been proposed and offers a unique opportunity to bring Clarity to a already clouded environment and brings in already cloudy environment don't take it from me though uh according to uh well sorry according to uh Circle CEO Jeremy alier stable coins are the lowest hanging fruit it's the most straightforward piece it's the most straightforward it's a foundational piece stable coins are blockchain-based assets that are pegged to an arbitrary value and there's no denying it dollar pig stable coins in particular have proven to be the killer application of this technology ever since the first stable coins were launched in 2014 stable coins have grown to dominate the space in both use cases and conversation sabercoins play a vital role in maintaining healthy liquid markets for tokens allowing users to frictionally frictionlessly interact with defy in the most efficient way possible in many cases transactions that would require days to settle in the real world happen a matter of seconds payment sabercoins make up the vast majority of stable points in circulation but a growing minority of sable coins are backed by crypto or even Commodities furthermore stable coins have found purpose in being paid out in salaries sent for remittances and act as a hedge against inflation in unstable economies in these cases stable coins are a Lifeline to preserving wealth according to a recent survey 97 of institutional investors agree that tokenization will revolutionize accident management and benefit the industry the idea of using digital money has grown on institutions but only if it comes from a trusted player it is not an exaggeration to say that hundreds of billions if not trillions of dollars are waiting on the sidelines ready to be called into the game trusted players don't step onto the field unless the rules are clearly outlined and when drafting these rules it's important to keep in mind that Sable coins are not cryptocurrencies simcoins are not Banks but stable coins are a completely novel form of money that uses a public blockchain ledger to facilitate transactions and keep track of balances stable coins will require separate definitions distinctions and guidelines from their counterparts so what exactly makes a stablecoin a stable coin the foundational core of a state of stable coins is the social contract between the stable coin holder and the stablecoin issuer holders receive utility vote users issuers receive yield stablecoin holders are able to retreat to stability on chain in a frictionless manner and redeem without worry in exchange save a coin issuers earn yield from the underlying reserves but are responsible for being able to reward the cash equivalent of the Fiat upon request for example payment stable coins allow for issuers to earn yield from high quality liquid assets and holders to redeem for Fiat at any time the entire business model for a payment stable coins the center around being the Fiat on off ramp to the on-chain world this is complete different from Banks whose primary function is to lend money from deposits and often this creates new money in the product in the process that did not exist before the purpose of banks is to grow the economy by offering credits for people to start businesses buy houses and more an article from the think tank the official monetary and financial institutions Forum echoices sentiment it makes the case that a save coin issue is emphatically not a bank and arguing not a deposit-taking institution either unlike the fractional Reserve Bank it does not create money by generating monetary assets partially backed by depository liabilities sabercoin issuers do not lend the underlying Reserve assets so they aren't exposed to the ups and downs of Market Cycles as long as the reserves Earths are only backed by high quality Reserve assets such as treasury bills high quality reverse rebook agreements government money market funds or deposit accounts the stable plan will be redeemable and safe stable coins are fundamentally a new technology and require a new framework are there any Frameworks that exist today that we can judge currently at the state level the New York Department of Financial Services approves the payments table coins as a part of their crypto regulatory framework what New York right here is that you do not need to be a depository institution to issue a stable coin these worlds were outlined in a guidance letter that was sent out in June 22 June 2022 and include points such as the the market value of assets back in the stable coin must be equal or greater to the nominal value of all stable coins circulating on chain at the end of each business day the Assets in the reserve backing in this of each stable plan must be siled from all other assets all other assets but and all the stable coins must have timely Redemption policies writing and approved in advance but the nydfs guidance does really well is it enshrines the already established social contracts between issuers and holders it protects holders by placing rules on what reserves can be how reserves should be custody and what kind of attestation those reserves have and is required and we have seen what happens if these rules are broken issuers face being shut down this is exactly what happened to busd last month when it came to light that the sabercoin was not sufficiently backed by its reserves for a period of time so the nydfs gives guidance at a state level but what has been proposed at a federal level several proposals have been made from both the legislative and executive branches over the past few years such as the president's working group report in 2021 on stable coins in sections of the Loomis Jilla brand responsible Financial Innovations act in the following year and over the following year but the most comprehensive bill that has been released is the final version of Senator toomey's trust act in December 2022 which would establish the first regulatory framework for payment stable coins and his final statements before returning to me prosely lies the promise and potential of stable coins saying that they are an exciting technological development that could transform money and payments and that he hoped that his bill would lay the groundwork for his colleagues to pass legislation over the next year safeguarding customer funds without inhibiting innovation received bipartisan support and was surprisingly co-spunder co-sponsored by one of the most well-known anti-crypto Advocates Elizabeth Warren but do not friend I believe if this bill is passed then it will spark one of the most promising adoption catalysts for the industry first and foremost the bill firmly designates payment Sable coins under the oversight of the office of the com Comptroller of currency which regulates Banks and authorizes the office and authorizes the office to establish a new federal license specifically for payment stablecoin issuers and allow them to apply for fed Master accounts because payment sabercoins are under the jurisdiction of the OCC it explicitly means that they are not securities and the new license yeah and also this is a given they aren't Banks this is an intentional part of the bill to prevent entrenching comments from being favored it does not prevent depository institutions from issuing their own stable coins it just means that they won't be artificially protected by a regulatory mode but Bill further goes the bill further goes into detail on what is required from issuers and what protections are granted to Holders both of which have been asked for by industry participants for years for issuers the bill defines what a payment save a coin is the requirements for maintaining a payment stable coin such as reserves being backed by high quality liquid assets Redemption policies and attestations of backing similar to the nydfs it requires stabacoin issuers to separate Sable coin deposits from regular banking activities so it doesn't impose a risk to the system it is best to think of this at this separation as a 21st century version of the glass-stigo ACT but instead of commercial Banks and investment Banks and their activities being separated it's arguably more conservative because issuers aren't allowed to lend for holders the stablecoin trust act provides a provides clear protections for them such as clarifying that they would have priority in the event of an issuer's insolvency in addition the bill makes a point to prioritize privacy and treat stable coins as the equivalent of cash all transactions not involving in intermediary are Exempted from the bank secrecy act and do not need to be reported based when it comes to rules and regulations payment saver points are the first Rubicon for both legislators and crypto to cross together if major stable planning legislation such as the trust act words to pass it would be heralded as a bipartisan Victory and both sides would brag about how they are protecting investors and fostering Innovation with the proper guidelines in place a stablecoin Renaissance for commence and will usher in a new era where crypto will be known for its utility rather than speculation if 10 of Americans were paid in stable coins in some form that would constitute over 33 million people and make a sizable voting block as Jake Stravinsky says so eloquently there are many tools that crypto supporters can use to promote good Pro Innovation policy at every level of government but there is nothing absolutely nothing that could have a bigger impact on policy than crypto enabled products and services that millions of people want to use we actually have a preview of what Mass adoption of payment stable coins would look like in the real world and it's probably something that you've used in the past week or month services like PayPal venmo Zell and cash app are digital money they are merely stable coins held on a private Ledger that have the same implicit agreement between holders and issuers and you can already and you can already guess how issuers earn revenue revenue venmo spokesperson Josh Crisco confirmed in a 2018 interview that any funds held in PayPal or venmo are transferred to bank bank accounts in PayPal's name the balances are pulled and held separate from PayPal's corporate funds and the company never uses the funds for its operating expenses or any other corporate purposes as outlined in our user agreements PayPal owns the interest on the funds it is important to note though also in their agreements that in the event that venmo or pay now fails holders are not protected they get rugged to review Paint private payment save a coins have existed for some time yet it is the public Ledger payment Sable coins that gets scrutinized interesting if only payment stable coins were grouped with PayPal the rhetoric from regulars may be very different looking back on the last session of Congress after the collapse of Terra but there were triadle trilateral negotiations led by Representatives Representatives Maxine Waters and Patrick mahendry from the house along with the treasury Department but they could not get a bill to committee with the fall of that TX it all sealed the deal for legislation not passing that session yet in their talks a quote-unquote ugly baby of a bill was drafted and could be something that could be considered in this in the future so what does the appetite look like for stable coin regulation to get past this session well in late January the administration released a letter urged in Congress to mitigate cryptocurrency risk how subcommittee the house subcommittee on digital assets chair Brett french hill has stated in its statements that passing stablecoin regulation was a top priority of his the committee of financial services that he is a part of can count outspoken crypto Advocate Tom emmer and the committee's chair Patrick McHenry as Representatives who will push regulation forward that prioritizes protection from over-regulation and fosters innovation in fact Emma recently introduced the cbdc anti-surveillance act that would act as a check on the Federal Reserve and their cbdc developments it makes sense though payment saber coins are an inherent competition to a cbdc that is attempting to gain Mass adoption from the populace Emmer's biggest concern is that any digital version of the dollar must have uphold our American values of privacy individual sovereignty and free marketing competitiveness anything less opens the the development to a dangerous surveillance tool one of the biggest hurdles would uh to legislation passing would be noted critic of cryptocurrencies Senator Sherrod Brown who is the chair of the Banking Committee any payments stablecoin legislation that hits the senate floor would need to be marked up by him but with the proper frame but with the proper framing I'm hopeful we are in the 11th hour for Congress to act on payment sabercoin legislation to protect not only American investors from insolvent issuers but also over regulation from the Executive Branch if Congress fails to pass legislation then it is likely that the Federal Reserve will oversee stable coins which leaves a number of question marks most notably Gary Gensler and the SEC are looking for any reason possible to widen its mandate in the name of protecting investors a few weeks ago the SEC informed Pacs us that they would be suing them over busd alleging that stable coins are securities with that form of logic does that mean PayPal is offering security when you hold the dollars in their custody Sable coins are a global phenomenon and it's C and if those seeking to regulate it into the ground have their way before its utility on a grand scale becomes obvious it will have a tremendous Ripple effects for the years to come Sable coins are growing in use and have a real chance of becoming the dominant former settlement in the future if issuers are forced to be pushed offshore they would have uh then it would be a cataclysmic setback from Capital Market formation in the U.S which is also an area area that the SEC is mandated to protect that's why we need legislators to act now to pass a sensible framework regarding payment stable coins because even if they pass laws to overturn regulations that are stamped on the books it will be too little too late forget a bill being ugly baby because the baby will be dead on arrival thank you foreign