- The House Financial Services Committee has unveiled its long-awaited stablecoin legislation.
- The proposed bill has called for regulating stablecoin issuers and created categories for the payment of stablecoins.
- The bill has included customer protection rules, risk management, and capital requirements.
The House Financial Services Committee has finally unveiled its highly anticipated stablecoin legislation. The proposed bill introduces distinct categories for payment stablecoin issuers, mandating that they be licensed entities at the state or federal level, and proposes a temporary ban on algorithmic stablecoins.
According to the bill, payment stablecoin issuers will be required to maintain reserves that back their stablecoins on a one-to-one basis with various assets, including United States coins and currency, Treasury bills, repurchase agreements, or central bank reserve deposits.
Tether Optimistic About Proposed Stablecoin Regulations
Companies seeking to issue stablecoins must apply with the appropriate regulator, which will have 45 days to acknowledge receipt of the application and 90 days to decide.
Failure by the regulator to make a decision within the allotted timeframe will result in automatic approval, followed by public comment on the application.
This legislation would have significant implications for Tether and Circle, as the largest stablecoin issuers in the world, as their current practices do not align with the proposed regulations.
However, a spokesperson for Tether expressed optimism that stablecoin regulation would bring clarity for larger corporates, institutions, and fintech companies entering the crypto market.
Bill Requires Licensing, Fines for Stablecoin Issuers and CBDC Study
The proposed bill also includes stringent requirements for stablecoin issuers in areas such as customer protection rules, risk management, capital requirements, and oversight provisions. Failure to obtain the required license to operate could result in substantial fines of up to $100,000 per day for stablecoin issuers.
Additionally, the bill calls for a two-year moratorium on endogenously collateralized stablecoins, which are stablecoins backed by other digital assets or use alternative mechanisms to maintain their value.
The bill also incorporates a provision for studying the potential impact of a central bank digital currency (CBDC), also known as a digital dollar, on the Federal Reserve’s monetary policy tools, the U.S. financial sector, banking sector, financial stability, and payment services.
On the Flipside
- The proposed stablecoin legislation may increase regulatory burdens for smaller stablecoin issuers, potentially leading to market consolidation and reduced competition.
- The 45-day timeframe for regulators to confirm receipt of applications and the 90-day timeframe for rendering decisions may be insufficient for a thorough evaluation of stablecoin issuer applications.
- The report due within a year of the bill’s passage on the study of endogenously collateralized stablecoins by various government agencies may not provide sufficient time for comprehensive research and analysis.
Why You Should Care
The proposed stablecoin legislation for existing stablecoins sets up a robust regulatory framework that mandates these issuers to be state or federally licensed entities. It also enforces stringent requirements regarding reserves, risk management, and customer protection rules.
For new stablecoins, it sets clear guidelines for issuance and operation. Additionally, the temporary ban on algorithmic stablecoins and the moratorium on endogenously collateralized stablecoins reflect the growing concerns around stability and risk in the crypto market.
As stablecoins play a significant role in the crypto ecosystem the proposed legislation could have a substantial impact on the overall stability and regulation of the crypto market, which could ultimately affect crypto investors and users.
To learn more about the future of stablecoins in relation to global standards, check out this article:
FSB Says Existing Stablecoins Will Be Left Behind by Global Standards
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