U.S. House Dems Propose Crypto Regulation Through 'STABLE Act'

December 9, 2020 03:05 PM
The STABLE Act stands for “Stablecoin Tethering and Bank Licensing Enforcement” and was introduced by 3 Democratic Congress Members
The chances of the bill passing in its current form are limited
The STABLE Act is indicative of the increased regulatory attention crypto is receiving
Crypto story of the day

Crypto story of the day



Crypto markets are weak this morning, though bitcoin (BTC) has rebounded off lows in the range of USD 18,000. Some of the recent high flyers, such as Ripple (XRP), are the worst hit by the sell-off.

Crypto Story of the Day

Last week, U.S. House Democrats unveiled crypto-focused legislation called the "STABLE" Act. While the bill is unlikely to be adopted in its current form, its scope has proven controversial.

The STABLE Act stands for “Stablecoin Tethering and Bank Licensing Enforcement” and was introduced by 3 Democratic Congress Members. The Act is meant to “protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other Stablecoins currently offered in the market, by regulating their issuance and related commercial activities.” Stablecoins are described as posing “new regulatory challenges while also [representing] a growing source of the market, liquidity, and credit risk.”

In broad terms, the legislation has 4 goals:

1) Require issuers of stablecoins to obtain a banking charter; 2) Require firms offering stablecoin services to follow appropriate banking regulations; 3) Require that any firm or bank issuing a stablecoin “notify and obtain approval” from federal regulators; and 4) Require stablecoin issuers to obtain FDIC insurance or maintain reserves at the Federal Reserve.

The STABLE Act preceded a letter from Democratic Congresswoman Maxine Waters suggesting the rescinding of the Office of the Comptroller of the Currency’s recent guidance regarding crypto. 

Given the bill was introduced by a group of Democrats in a session of Congress ending January 3, the chances of it passing in its current form are limited. However, its scope and lack of appreciation for the nuance of blockchain networks arguably represent burdensome regulation that some in crypto have feared.

While the bill does seem to focus on stablecoins only by firms like Facebook and fails to mention blockchain, the bill’s scope is problematic for existing blockchain network solutions. For example, do smart contracts that automatically mint algorithmic stablecoins, like DAI, need to obtain banking charters? Or, are Ethereum node operators “offering stablecoin services” by processing Tether transactions? Rohan Grey, a legal scholar who worked on the drafting of the legislation, tweeted: “Or you have to accept that running an open blockchain network means you are, at some level, liable for the actions that take place on that network.” 

The scope and tone of the STABLE Act, paired with Waters’ letter, are borderline combative toward the industry. Having said that, U.S. federal crypto regulation is in its infancy and will likely involve greater compromise in order to pass into law given the growing presence of crypto proponents within the U.S. political establishment, like Cynthia Lummis, Warren Davidson, and Tom Emmer. Ultimately, we view the bill as indicative of the increased regulatory attention crypto is receiving, however, it’s too soon to be concerned that its contents necessarily speak to the direction new rules may take.

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