Congress Revives Stablecoin Bill

Proposed Legislation Calls For Monthly Attestations From Stablecoin Issuers and Temporary Ban on Some Algorithmic Stablecoins

By: Aleksandar Gilbert Loading...

Congress Revives Stablecoin Bill

Some stablecoin issuers would have to register with U.S. authorities and provide monthly proof their tokens are fully backed by cash and other easy-to-sell assets, according to a draft bill that lawmakers will discuss at a hearing on Wednesday.

The bill would also ban certain kinds of algorithmic stablecoins – assets that rely on software and market incentives to maintain their designated pegs rather than collateral – pending a study of their risks.

The draft is the first crypto bill to surface in the U.S. this year, and is a revived version of a bipartisan bill circulated last fall, according to Ron Hammond, head of government relations at the Blockchain Association.

‘Payment Stablecoins’

The bill would regulate “payment stablecoins,” crypto tokens with a fixed value that are “designed to be used as a means of payment.” It does not, however, name any stablecoins that are —or are not — designed to be used for payment, nor the issuers that would be forced to register should it pass.

A recent essay from the chief economist at Circle, the company behind the USDC stablecoin, attempts to make a distinction between payment stablecoins and those used for speculation.

“USDC has minimal speculative exposure compared to its fiat currency equivalent, while trading stablecoins like Tether and BUSD have over seven times the speculative exposure relative to payment stablecoins,” the economist, Gordon Liao, writes.

Not everyone is convinced.

John Paul Koning, the author of the Moneyness blog and a contributor to crypto publication ConDesk, believes Liao’s distinction is an attempt to curry favor with politicians, who might consider tokens used for payments less controversial than those used for online gambling.

“Having watched stablecoins markets for a while now, my internal library of anecdotal evidence tells me that USDC isn’t used much in payments, but mostly for trading,” he wrote last week. “It’s just that one of the big roles USDC plays in trading is a relatively sedentary one, as a form of collateral in decentralized finance (or DeFi), and so its turnover is relatively low.”

Hillary Allen, a professor at the University of Alabama School of Law, believes the bill is “stacked in favor of stablecoin issuers.”

The collapse of crypto exchange FTX in November was a blow to crypto proponents who hoped recent efforts at crafting crypto-friendly legislation would bear fruit in 2023. The release of the draft suggests lawmakers might still come to a compromise regarding stablecoins, according to Alexander Grieve, a vice president at Tiger Hill Partners, a lobbying firm based in Washington, D.C.

“This has clearest line-of-sight to law of any crypto bill that’s been proposed yet,” he wrote on Twitter.

Hammond agrees.

“The stablecoin bill is by far the most active bill in crypto this Congress so far,” he wrote.

No Mandatory Audits

Companies that apply for permission to issue a stablecoin will receive an answer within 90 days, according to the bill. If they don’t, their application will receive automatic approval. The bill does not require external audits of issuers’ monthly reserve attestations.

“With regard to reserve requirements, has any thought been given to the fact that a run on a widely-used stablecoin may lead to runs on the banks where the reserves have been deposited, and could also mess with [the] Treasuries market?” Allen wrote.

The House Financial Services Committee’s Wednesday hearing will feature Jake Chervinsky, head of policy at the Blockchain Association; Dante Disparte, the chief strategy officer at Circle; Austin Campbell, an adjunct professor at Columbia Business School and the former head of portfolio management at stablecoin issuer Paxos; and Adrienne Harris, the superintendent of the New York State Department of Financial Services.