Congress and Stablecoin Legislation

What you need to know?

The proposed Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act in the US would make it illegal to offer unlicensed stablecoins globally, including popular ones like MakeDAO (DAI) and LUSD Stablecoin (LUSD). The definition of stablecoin is broad, encompassing any token redeemable for a fixed amount of monetary value, including fiat currencies. The Act aims to regulate stablecoin issuers, requiring licensing and giving them access to the Federal Reserve. It also allows stables to be collateralized by insured deposits and launches a study on a central bank digital currency (CBDC). The Act broadly defines “payment system” but doesn’t regulate them, including wallets, bridges, DeFi, and crypto payment apps. The bill’s passing may benefit the uptake of non-stable payment tokens, especially Ethereum (ETH).

More broadly:

The Act’s broad definition of “stablecoin” includes floating stables like RAI and even exotic quasi-stables, as long as they are redeemable for a fixed amount of “monetary value,” including fiat currencies. Violators of the Act could face up to five years in prison and a fine of up to $1 million.

It is apparent that RAI does not meet the clause requiring a stablecoin to “maintain a stable value relative to the value of a fixed amount of monetary value,” as RAI is not redeemable for a fixed monetary value. Additionally, the Act’s definition of “monetary value” is largely limited to national currencies, which explains why tokenized gold is not subject to regulation under this legislation.

The STABLE Act establishes a structured process for licensing stablecoins, but ultimately gives discretion to the regulators to decide which entities can issue licensed stablecoins.

The STABLE Act permits stablecoins to be collateralized by insured deposits in certain situations, which could potentially classify deposit tokens as “stablecoins backed by bank deposits” and subject to this regulation.

The STABLE Act grants stablecoin operators direct access to the Federal Reserve, meaning that entities like Circle could have accounts with the Fed.

The STABLE Act initiates an official study on the potential implementation of a central bank digital currency (CBDC), which includes a well-considered list of criteria to analyze, such as the potential effects a CBDC could have on the competitive landscape of stablecoins.

The STABLE Act provides a comprehensive definition of “payment system,” which could encompass various wallets, bridges, DeFi platforms, and crypto payment applications. However, the Act does not regulate these payment systems, and it neither bans nor licenses DeFi platforms in this legislation.

In summary, the STABLE Act renders decentralized stablecoins like DAI, LUSD, and potentially RAI illegal in the US, yet RAI does not meet the clause requiring a stablecoin to “maintain a stable value relative to the value of a fixed amount of monetary value.” So that is questionable! While also outlawing foreign-licensed stables and drawing national boundaries around stablecoins. This legislation is likely to drive significant adoption of Ethereum (ETH) as a legal and decentralized payment method. Meanwhile, licensed stablecoins like USDC stand to benefit greatly, as they will be allowed to access Fed accounts directly.

You can find the current draft of the bill here:

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