On December 2, 2020, three members of the U.S. Congress issued a press release concerning the introduction of the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, which they touted as a consumer protection statute.  The proposed legislation seeks to increase the oversight and regulation of stablecoins.

The STABLE Act would:

  • Require any prospective issuer of a stablecoin to obtain a banking charter;
  • Require that any company offering stablecoin services must follow the appropriate banking regulations under the existing regulatory jurisdictions;
  • Require that any company or bank issuing a stablecoin to notify and obtain approval from the Fed, the FDIC, and the appropriate banking agency 6 months prior to its issuance and maintain an ongoing analysis of potential systemic impacts and risks;
  • And require that any stablecoin issuers obtain FDIC insurance or otherwise maintain reserves at the Federal Reserve to ensure that all stablecoins can be readily converted into United States dollars, on demand.

The bill would essentially require all stablecoin issuers (such as Circle for the USDC) to have a banking charter and be licensed by multiple federal agencies.

According to the press release, The STABLE Act seeks to remedy challenges the COVID-19 Pandemic has supposedly exposed in the banking system, such as barriers to accessing and utilizing mainstream financial institutions, leaving many to look to the financial technology sector to meet the financial servicing needs of low- and moderate-income (LMI) consumers for everything from faster direct payments, access to loans, and even access to bank accounts. LMI consumer vulnerabilities could be exploited and obscured by bad actors looking to issue stablecoins.

There was immediate pushback from the crypto community.  Jeremy Allaire, CEO of Circle, countered in a tweet that “an enormous amount of the innovation brought to the underbanked and small businesses has been driven by non-bank fintech companies (Stripe, Square, PayPal, Circle, Coinbase, Apple, Google and many many others).”  He also said that “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.”

Meltem Demirors, Chief Strategy Officer at CoinShares, had the following response: “cryptocurrencies LOWER the cost of servicing populations that have historically been excluded from the banking sector. raising costs and compliance obligations forces companies to cut access for unprofitable clientele.

As a practical matter, this legislation will go nowhere right now because the current session of Congress ends on January 3, 2021.  However, it could very well be re-introduced next year.

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David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. He is currently the Chairman of the Litigation Department of the firm’s New York office. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. Since 2008, David has been included in Chambers for his expertise in international arbitration.