Blockchain Bites: Bitcoin’s Edge as a Hedge and Crypto’s Reaction to the STABLE Act

Crypto Twitter, like the U.S. Congress, is largely divided between warring factions and in-groups. But for once it looks unified. All it took was a proposed bill to further regulate stablecoin issuers, the so-called STABLE Act.

In essence, the bill is applying a key component of banking regulation to the emergent stablecoin industry. Dollar-backed stablecoins are a small fraction of global financial activity, though it is a rapidly growing sector. As of October, there were some $20 billion in various programmable dollar analogues floating around the cryptoverse.

A number of high-profile crypto commenters immediately issued public comments lambasting the proposal, introduced by Rep. Rashida Tlaib and co-sponsored by Reps. Jesús “Chuy” García and Stephen Lynch.

Circle CEO Jeremy Allaire said the bill “would represent a huge step backwards” by limiting industry innovation.

“An enormous amount of the innovation brought to the underbanked and small businesses has been driven by non-bank fintech companies, and forcing crypto, fintech and blockchain companies into the enormous regulatory burdens of Federal Reserve and FDIC regulation and supervision is inconsistent with the goals of supporting innovation in the fair and inclusive delivery of payments that comes from stablecoins,” he said in a statement emailed to CoinDesk.

For their part, Tlaib, García and Lynch see the rules as leveling the playing field and could be a key part of creating an inclusive financial ecosystem. The idea is to prevent novel financial instruments from falling into the same exclusionary traps of the banking industry.

Tlaib explained the mission statement in a tweet: “Preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color traditional big banks have is critically important.”

Many in crypto think the proposed law would do just the opposite: By introducing burdensome compliance costs and reifying the power of traditional banks.

The bill overlooks “two core promises of decentralized networks: the chance to put more power in the hands of individual consumers and to catalyze innovation across payments and other financial services,” Blockchain Association Executive Director Kristin Smith said in a statement.

“Cryptocurrencies LOWER the cost of servicing populations that have historically been excluded from the banking sector,” Meltem Demirors, CoinShares’ chief strategy officer, tweeted. “Raising costs and compliance obligations forces companies to cut access for unprofitable clientele.”

Despite the pushback, it might be worth wrestling with some of the ideas in the document. The STABLE Act raises questions around what exactly a deposit is, what sorts of obligations issuers have towards their users and the novel regulatory challenges around an industry just getting started. That’s to say nothing of liquidity and credit risks.

“Any entity that wants to issue something that walks and talks like money or like a deposit should be regulated like a depository institution,” Rohan Grey, an assistant professor at the Willamette University College of Law (and an adviser for the bill), told CoinDesk.

To be sure, not all stablecoin issuers are the same – and many make promises about maintaining full, or partial reserves that are difficult to scrutinize.

“What is not clear, however, is whether the word “tethering” in the legislation’s name is a pun on the largest stablecoin, tether – or USDT – which is not otherwise mentioned in the congressmembers’ press release,” Modern Consensus Editor in Chief Leo Jakobson wrote.

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Most Influential

Looking Back, Moving Forward: Crypto’s Most Influential in 2020
Each year since 2014, CoinDesk has identified the crypto community’s “most influential” members. The community needed influencers to spread awareness, build confidence and set precedents for the digital currency industry to reach its full potential.

These evangelists broke through all the white noise and ushered in a new wave of enthusiasts into the space. To recognize their contributions, CoinDesk launched its “Most Influential” franchise to highlight individuals who moved the needle.

Over two days, Dec. 7-8, a special CoinDesk Live series looks back to the first list and takes stock of the industry’s progress, and zooms forward to reveal CoinDesks’ seventh Most Influential list to recognize the latest pioneers who helped take the industry forward.

Watch CoinDesk Live: Most Influential 2020 on CoinDesk.com, YouTube and Twitter, Dec. 7-8.