Author: Mark Hartley

On December 2, 2020, three members of the US House of Representatives, Michigan Democrat Rashida Tlaib along with Congressmen Jesus García and Stephen Lynch, introduced a new stablecoin regulation bill dubbed the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act. 

The rather conveniently titled STABLE act proposes some strict restrictions on the issuance of digital versions of the US dollar. Essentially, it requires that any US-based company like Facebook that wishes to issue a stablecoin backed by the US dollar must become a bank. Should the act be passed into law, private US-backed stablecoin operators like Tether (USDT), USD Coin (USDC), and Paxos Standard (PAX) will be required by law to obtain not only a banking charter but also approval from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and financial regulators.

Now, all this makes some sense – the US can’t have every Tom, Dick, and Harry handing out digital tokens like sweets and claiming they’re backed by “safe and reliable” dollar bills. Tether has been doing this for quite a while now and has racked up a rather sizable amount of supposedly government-backed USDT tokens to the tune of almost $20 billion. Even though that number is equivalent to only 0.08%  0.07%  0.06% of the total US national debt, it’s still a fairly large sum. 

US Congress is understandably concerned that should such a large company default on its liabilities, there would be more than a few extremely unhappy customers. So, to avoid a crypto version of the 2008 financial crisis, regulations like the STABLE Act are allegedly here to ensure that the ever trustworthy Federal Reserve keeps a close eye on your money. 

So how is this a threat to crypto?

The proposal of the act has sent ripples through the crypto community, some of whom fear the stifling regulations could limit market activity or even turn node operators into criminals. Others feel it would hinder the development of blockchain and cryptocurrency technology just at a time when it’s getting started. Jeremy Allaire, CEO of Circle, the company that issues USDC, had this to say:

“The STABLE Act would represent a huge step backwards for digital currency innovation in the United States, limiting the accelerating progress of both the blockchain and fintech industry.”

While their concerns are valid and the regulations could be disruptive, some form of insurance for crypto consumers does seem pertinent. Regulations in the form of STABLE may be overbearing but there are areas of the crypto sector that could do with better oversight. One can’t help but question why Tether remains resistant to an audit that would confirm the dollar-backed status of its reserves. It doesn’t help that its parent company, iFinex Inc, is embroiled in an ongoing lawsuit with the New York Justice Department regarding the cover-up of $850 million in lost co-mingled client funds.

If you believe, as some do, that USDT tokens are not fully backed by anything tangible, then the implications of the STABLE act could be far-reaching. If for whatever reason, Tether was unable to keep operating and was not able to honour all the USDT tokens in circulation, the crypto market would certainly take a knock. With Tether headquartered in Hong Kong, it’s uncertain how the regulations may affect the company.

At the end of the day, whether the STABLE Act truly poses a threat or not, it further highlights a pressing need for greater decentralization in the crypto community. Ideally, an ecosystem that doesn’t rely on favourable government regulations and outdated fiat on-ramps but rather an evenly distributed, community-led system secured by code.