Cryptocurrency legislation is on the rise — what does the proposed stablecoin bill mean?

The proposed regulation could fundamentally change the stablecoin ecosystem , so it’s worth taking a look at what exactly this proposed legislation includes.

As 2020 draws to a close, the crypto space is also seeing a piece of proposed legislation that, if rolled out as currently written, could alter and curb the rapidly growing and evolving stablecoin space. The Stablecoin Act, introduced by several lawmakers, is designed to prevent abuse, opacity, and the potential rise of a shadow banking system based on stablecoins, according to the legislation's main backers. These are certainly worthy goals, but the specific details of how to achieve them, namely through specific provisions in the bill, almost immediately sparked protests from the broader blockchain and crypto community.

From the proposed bill itself, there are several specific obligations that stablecoin issuers must comply with in order to avoid violating the law.

First, any stablecoin issuer would need to obtain a federal banking charter, thereby going beyond compliance with state regulations and/or money transmission laws. Second, any issuer would have to fully comply with and fulfill existing banking regulations. These regulations exist for a reason, but their cost and complexity may favor incumbents over new entrants. In addition, any stablecoin issuer would have to obtain approval from the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) six months prior to issuance. Finally, the stablecoin issuers themselves — unlike financial institutions that have FDIC coverage — would need to obtain FDIC insurance or deposit U.S. dollar reserves directly with the Federal Reserve.

Looking again, some of the comments and feedback surrounding this legislative proposal mainly revolve around the following two points. First, this bill seems to explicitly focus on non-incumbent and start-up institutions, rather than large institutions that have recently begun to accept and use stablecoins as a medium of exchange. Specifically, the bill does not seem to focus on general non-bank US dollar liabilities, but only on those that are defined as stablecoins. Second, the complexity, cost, and time required to fully comply with these additional rules , beyond the scope of money transmission and other country-specific legislation that is already in place, may become a significant obstacle to the development of stablecoins in the future.

Particularly as the stablecoin industry continues to grow rapidly, there is also a very real risk that other jurisdictions around the world may develop more crypto-friendly regulations to take advantage of this rapidly growing market.

With all of this said, there are a few things to keep in mind as the debate surrounding the Stability Act continues.

The legislation is awaiting approval. Some may view the fact that this legislation has even been proposed as a negative trend, but on the contrary, it should be seen as a sign of maturity in the cryptoasset industry. It is worth remembering that while nearly 30 blockchain and crypto bills have been introduced and debated in the U.S. Congress during 2020, no substantive legislation has been passed as of this writing. Whether positive or negative, the passage of blockchain or cryptoasset legislation does not seem to be a priority for federal lawmakers.

Nonetheless, engagement with legislators and the policymaking process is necessary for all major stablecoin players, and it is encouraging to see that many of the largest organizations in the space have become more involved in the legislative process since 2017.

The Stablecoin Act highlights CBDCs. While not explicitly stated in the proposed legislation, the ultimate effect of this legislation will be to essentially phase in central bank digital currencies (CBDCs) rather than purely private options. The shift and development toward more centralized cryptocurrency options is already underway, and this type of legislation will only accelerate the process. Some argue that a CBDC issued and managed by a centralized, central government does not represent a true cryptocurrency, but it would be an oversimplification to ignore this trend.

No development happens overnight, and stablecoin organizations, in whatever capacity, will play an indispensable role in the further maturity of crypto assets.

Price shouldn’t be the focus . The drafting of this legislation was driven, at least in part, by the rapid rise in cryptocurrency prices in 2020. Especially in the current environment, where economic and social inequalities have been widened due to COVID-19, focusing on price increases may not always be conducive to wider acceptance and understanding. Instead, focusing on and highlighting the benefits that can be achieved by all users of cryptocurrency in terms of reduced costs, faster transaction processing, and greater overall transparency should be the focus of crypto advocates.

But thankfully, these appear to be exactly the areas that the Stablecoin Act’s respondents have been focusing on so far.

Regulation and legislation are never perfect from the outset, just as no idea is ever fully formed and ready for implementation. Nonetheless, the drafting and introduction of this legislation should also serve as a wake-up call for stablecoin issuers and the entire crypto asset industry. Cooperation, collaboration, and education with legislators and the business community at large will be core themes for blockchain and crypto industry advocates in 2021.

Original author: Sean Stein Smith

Original link: https://www.forbes.com/sites/seansteinsmith/2020/12/09/cryptocurrency-legislation-is-on-the-rise--what-the-proposed-stable-act-could-mean-for-crypto/?sh=62d5895a633d