{"id":23676,"date":"2021-10-05T15:56:40","date_gmt":"2021-10-05T13:56:40","guid":{"rendered":"https:\/\/thecryptowolf.net\/2021\/10\/05\/the-us-inches-closer-to-stablecoin-rules\/"},"modified":"2021-10-05T15:56:40","modified_gmt":"2021-10-05T13:56:40","slug":"the-us-inches-closer-to-stablecoin-rules","status":"publish","type":"post","link":"https:\/\/thecryptowolf.net\/2021\/10\/05\/the-us-inches-closer-to-stablecoin-rules\/","title":{"rendered":"The US Inches Closer to Stablecoin Rules"},"content":{"rendered":"
\"The<\/div>

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We\u2019re starting to get a sense of how the Biden administration will try to regulate stablecoins. The short version seems to be: A regulatory framework that would mandate more transparency and oversight from issuers (versus one focused on the stablecoins themselves).<\/p>\n

Side note: I\u2019m at The Trading Show Chicago<\/a> today and tomorrow. If you\u2019re also here, let\u2019s say hi.<\/p>\n

You\u2019re reading State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. <\/i>Click here<\/i><\/a> to sign up for future editions.<\/i><\/p>\n

Stablecoins as not-securities<\/h1>\n

The narrative<\/h4>\n

The Biden administration is moving beyond vague hints on how it will regulate stablecoins to more concrete descriptions. There\u2019s still a lot we don\u2019t know yet.<\/p>\n

Why it matters<\/h4>\n

Stablecoins have exploded in popularity over the past year or two, with some $130 billion worth of these fiat-pegged tokens in circulation as of Sunday night, according to CoinGecko<\/a>. Regulators have been eyeballing this specific sector of the broader crypto industry for nearly a year, and we\u2019re finally seeing their response. The final regulations will determine whether some issuers have to shut down or block U.S. users, as well as what sort of transparency we can expect to see from these issuers.<\/p>\n

Breaking it down<\/h4>\n

Stablecoins! Yes we\u2019re still talking about this. The Biden administration has gotten very busy around cryptocurrencies in general. The Securities and Exchange Commission (SEC) will start approving or rejecting bitcoin exchange-traded fund (ETF) applications in the next few weeks, the Office of Foreign Assets Control just sanctioned a crypto trading firm for the first time and regulators have been talking a lot about regulating the market.<\/p>\n

Stablecoins have taken on a particular importance. The Trump administration even convened<\/a> a President\u2019s Working Group for Financial Markets<\/a> meeting to discuss the issue, so it\u2019s no surprise the current administration has been looking to enact regulations.<\/p>\n

\u201cWhat isn\u2019t clear is what sort of regulatory framework would make the most sense for stablecoins,\u201d I wrote<\/a> in July.<\/p>\n

We now have the first glimmer of how the Biden administration plans to answer this question: Treating stablecoin issuers in a similar way to banks<\/a>.<\/p>\n

The administration has a two-track plan here and the first depends on Congress. Should that not work out for whatever reason, officials will look to the Financial Stability Oversight Council, an interagency body established in the wake of the 2008 financial crisis to monitor risks to the system.<\/p>\n

The congressional path seems fairly straightforward at first blush. Team Biden intends to ask Congress to draft a law that would authorize a special-purpose, bank-like charter for stablecoin issuers. This would create a federal framework for stablecoin issuance while assigning a regulator oversight authority over these businesses.<\/p>\n

This would also impose bank regulations and supervisory requirements on stablecoin issuers, which I\u2019m guessing would include some specific reporting or backing requirements.<\/p>\n

Regulators have espoused the need (in their view) for any sort of regulatory oversight over stablecoins at the federal level. While some U.S.-based stablecoin issuers are regulated by state financial regulators (cough, NYDFS<\/a>) there\u2019s no one agency formally assigned at the federal level.<\/p>\n

Federal Reserve Chair Jerome Powell reiterated this view in a hearing before the House Financial Services Committee hearing last week<\/a>.<\/p>\n

\u201cStablecoins are like money market funds, they\u2019re like bank deposits but they\u2019re to some extent outside the regulatory perimeter and it\u2019s appropriate that they be regulated \u2013 same activity, same regulation,\u201d he said.<\/p>\n

SEC Chair Gary Gensler has likewise compared stablecoins to money market funds, as have lawmakers in the House of Representatives and Senate.<\/p>\n

Bank regulations are something else.<\/p>\n

We don\u2019t yet know the specifics of this special-purpose charter the Treasury Department is pitching. Matthew Homer, executive in residence at VC firm Nyca Partners and formerly the fintech lead at the New York Department of Financial Services, said one of the major questions is why the Office of the Comptroller of the Currency\u2019s (OCC) current trust bank or full bank charter framework would not suffice.<\/p>\n

Another question is whether the OCC, a federal bank regulator, would indeed be the chartering entity here, or if a different federal agency would be given oversight of stablecoin issuers.<\/p>\n

\u201cWould banks with normal bank charters be able to issue stablecoins? Will this have implications for other areas like the issuers of prepaid cards?\u201d Homer asked. \u201cIn some ways a stablecoin is no different from a stored-value product like a prepaid card where you have a third-party program manager with a bank holding the deposits.\u201d<\/p>\n

It\u2019s also unclear to me how stablecoins tied to decentralized finance (DeFi) projects might fall into this new framework.<\/p>\n

Given the attention on DeFi though, I\u2019m sure this is an area we will see addressed.<\/p>\n

Dante Disparte, chief strategy officer and head of policy at Circle, which manages the USDC stablecoin, said in a statement that the rumored framework \u201cis encouraging.\u201d<\/p>\n

\u201cThe time has come to address the risks and seize the significant opportunities of dollar digital currencies like USD coin (USDC),\u201d he said. \u201cCircle has already been working toward becoming a full-reserve national commercial bank, and we strongly believe that a full-reserve banking model built on digital currency technology can lead to a more efficient, fair, inclusive and resilient financial system.\u201d<\/p>\n

Tether\u2019s trillion-dollar lawsuit<\/h1>\n

Last week, stablecoin issuer Tether announced it won a partial dismissal of a lawsuit it is fighting.<\/p>\n

The case has its origins almost two years ago to the day, when a handful of crypto investors sued Tether, Bitfinex and DigFinex<\/a>, as well as various current and former executives (and later adding<\/a> Bittrex and Poloniex) on allegations the businesses manipulated bitcoin\u2019s price; the investors claimed damages upwards of $1.4 trillion.<\/p>\n

The amended complaint, filed in June 2020, filed causes of action alleging monopolization (count one); attempted monopolization (count two); conspiracy to monopolize (count three); agreement in restraint of trade; another antitrust allegation (count four); market manipulation (count five); agent liability (count six); aiding and abetting legal violations (count seven); racketeering (RICO) i.e., wire fraud, bank fraud, money laundering, etc. (count eight); two more RICO counts (counts nine and 10); fraud (count 11); and deceptive actions (count 12).<\/p>\n

Tether and the other defendants filed to dismiss<\/a> the case in September of last year.<\/p>\n

U.S. District Judge Katherine Polk Failla, of the Southern District of New York, dismissed<\/a> the third, eighth, ninth, tenth and twelfth counts and dismissed the sixth count for Bitfinex, Tether, DigFinex, Bittrex and Poloniex. The defendants now have until Oct. 28 to respond to the rest of the amended complaint (i.e., counts one, two, four, five, seven and 11).<\/p>\n

In other words, Tether et al. will have to respond to the allegations of monopolization, market manipulation and fraud by the end of the month.<\/p>\n

For its part, Tether seems pretty pleased with the current state of affairs.<\/p>\n

\u201cEven for the remaining claims, the Court\u2019s order raises substantial issues that will ultimately be fatal to the plaintiffs\u2019 case. With half their case now dismissed, their primary expert debunked, and their lead law firm embroiled in its own internecine war \u2013 with its partners and former partners trading allegations of fraud and ethics violations \u2013 this case is doomed,\u201d Tether said in a statement<\/a> posted to its website.<\/p>\n

Biden\u2019s rule<\/h1>\n

Changing of the guard<\/h4>\n

\"Key:<\/p>\n

Rohit Chopra, Biden\u2019s nominee to run the Consumer Financial Protection Bureau, officially took office after the full Senate confirmed his appointment last week. It will be interesting to see if and how the CFPB takes on crypto businesses under Chopra\u2019s direction. A quick glance at the CFPB\u2019s consumer database shows that crypto exchange customers are filing complaints, though the numbers are small when compared to major banks like Wells Fargo. It\u2019s also worth noting that Sen. Elizabeth Warren (D-Mass.) praised Chopra\u2019s nomination<\/a> back when Biden announced it in January.<\/p>\n

Elsewhere:<\/h1>\n