The Debate for the Stablecoin Bill Continues, and Fear Looms Over This Bill

The Debate for the Stablecoin Bill Continues, and Fear Looms Over This Bill

  • Stablecoins can be issued by both banking and non-banking organizations. 
  • Any company wanting to deal with stablecoins has to be first approved by the FED within 90 days.

Stablecoins were front and center in a congressional hearing in the United States on Wednesday, and some of the ideas expressed were more than a bit volatile.

The House Financial Services Committee convened a hearing on Wednesday titled “Understanding Stablecoins‘ Role in Payments and the Need for Legislation.” The meeting was preceded by the unexpected release this weekend of a long draft talking about the requirements to issue stablecoins and research regarding the digital dollar.

The draft was mostly overlooked during Wednesday’s meeting in favor of a broader stablecoin debate. These include the endeavor to distinguish between a ‘payment stablecoin’ and the casino chips employed in the utility-free exchange paradigm. 

Proposal for the Stablecoin 

The proposal defines payment stablecoin as “designed to be used as a means of payment or settlement” but not as a national currency or a security issued by an investment firm.

The issuer is required to “convert, redeem, or repurchase” stablecoins for “a fixed amount of monetary value.” In addition, the issuer must generate a “reasonable expectation” that their coins will retain..

Payment stablecoin issuers must be approved by a “federal payment stablecoin regulator” or “a registered State qualified payment stablecoin issuer.” State issuers must file a “registration statement” with the Board of Governors of the Federal Reserve.

The statute gives the federal regulators only 90 days for approval after they receive the application. The federal regulator’s hands would be somewhat tied since the failure of making a decision within the 90-day period would result in automatic approval of the application.  

Issuing authority

Issuers of stablecoins would be obliged to publish monthly statistics on the makeup of their reserve portfolio, with CEOs required to provide monthly attestations guaranteeing the correctness of this information. Annual reports must also be filed by issuers with more than $150 million in stablecoins in circulation.

Stablecoins could be issued by both banks and non-bank companies. Both would be eligible for Fed master accounts and access to the discount window (Fed loans to depository institutions).

However, according to the draught, 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.” Anyone who misrepresents the above caveats shall face sanctions.

The draft also covers “endogenously collateralized stablecoins,” commonly known as ‘algorithmic’ stablecoins such as Terraform Labs’ doomed UST. If the measure is passed, it will be prohibited to create an endogenously collateralized stablecoin that is “not in existence” at the time the law is passed for two years.

Summing up 

Finally, the measure mandates a new assessment of the implications of a U.S. central bank digital currency (CBDC), including the effect such a ‘digital dollar’ might have on the stablecoin market.