The US House Financial Services Committee recently proposed a new stablecoin law that, if passed, would bring significant changes to the cryptocurrency industry. The legislation provides clarity on the regulatory requirements for stablecoin issuers, introduces a two-year hiatus on new endogenously collateralized tokens, and gives non-bank coin issuers access to central bank money.
Stablecoin Issuer Access to Central Bank Accounts
The proposed bill would explicitly allow non-bank stablecoin issuers access to central bank deposit accounts and central bank borrowing, making central bank deposits one of the acceptable backing assets for the digital tokens. While this move provides the safest asset backing, it may accelerate runs from banks to stablecoins during times of bank instability.
90 Days Max for Stablecoin Application Response
The proposed legislation mandates that banks and non-bank entities submitting stablecoin applications must receive a response from regulators within 90 days. If no decision is reached within this time frame, the application will be deemed approved.
This clause seems to be designed to prevent the same circumstances experienced by Custodia. It should be noted that the crypto bank experienced a multi-year delay in getting a decision from the Federal Reserve for its master account application.
Two-Year Hiatus on Crypto-Backed Stablecoins
If the bill passes, there will be a two-year moratorium on new endogenously collateralized stablecoins, which means that no new coins backed by other digital assets can be issued in the first two years of enactment. This move allows the Department of the Treasury, the Security and Exchange Commission, and the Office of The Comptroller of the Currency enough time to study the topic.
CEO Should Attest to Stablecoin Reserves
The proposed regulation seeks to enhance transparency and accountability in the cryptocurrency market by requiring stablecoin issuers’ CEOs to provide monthly attestations of backing assets in order to ensure reserves are appropriately supported. This requirement is becoming increasingly necessary, especially with the recent allegations that Tether made false statements about the backing assets of its stablecoin.
The Legislation’s Effectivity
The legislation requires the Federal Reserve to craft rules for non-bank stablecoins no longer than 180 days following the passage of the law. The proposed law will come into effect 18 months after enactment or 90 days after the new stablecoin regulations are finalized, whichever comes first.
Penalties for Unlicensed Issuers
The proposed legislation imposes sanctions for violators or unlicensed stablecoin operators set at $100,000 a day. Depending on the gravity of the offense, the sanctions may even stretch up to a million dollars and/or imprisonment of five years. Therefore, it’s a must for its issuers must obtain licenses to operate legally in the United States.
Implications and Ramifications
If passed, the new law will significantly impact the crypto industry, creating new regulatory requirements for stablecoin issuers. The legislation will also provide more clarity and security for its users, ensuring that the digital tokens have adequate backing assets. However, the two-year hiatus on crypto-backed stablecoins may slow innovation in the industry, allowing competitors elsewhere to gain a significant advantage in the global market.
Final Thoughts About the Proposed Stablecoin Law
The new stablecoin law proposed by the U.S. House Financial Services Committee will bring significant changes to the stablecoin industry. While the bill has bipartisan support, it is yet to be seen whether it will pass and what the long-term effects will be. Nevertheless, the proposal highlights the increasing need for regulations in the fast-growing stablecoin market.