A Bipartisan majority in the Senate has just passed the brilliant law to provide a regulatory framework for stablecoins. A similar bill, the stable action, works through the house. President Trump wants to sign a stableecoin bill in law this year, so it seems that we are well on our way to a long -due regulatory regime for stablecoins.
Or are we? We should not count our chickens until they are padded. The proposed legislation is defective and can and should be determined immediately to eliminate unnecessary duplication that will impose excess costs and taxpayer on the industry.
Fortunately, the legislation can be easily corrected. Although the house and senate bills have some differences and the two chambers will have to come to an agreement. Will the resulting bill be known as the stable genius law? There is still time to avoid problems such as the choice of 55 different regulators or keep interest -bearing stablecoins out of the legislative framework.
The problems in our outdated legislative framework have contributed to the dull state of crypto regulation in the United States, we have literally hundreds of different financial regulatory bodies at state and federal level, and they do not play nicely together. The supervisory authorities participate in peat fights to expand their domains, while other important issues fall into the neglected cracks. FTX was regulated by state money transmitting regulators of all people. Who bright idea was that?
This fragmentation of our regulatory system was one of the contributing factors to the financial crisis in 2008. Congress’s response in Dodd-Frank legislation was to add another layer of bureaucracy, Financial Stability Oversight Council (FSOC). The idea behind the FSOC is that the dukes and the earls who were responsible for the regulatory fiefs would meet in one committee and cooperation more than they had before. Congress is repeating this error in demanding joint decision making from the alphabet soup agencies.
This Byzantine bureaucracy has slowed down a healthy approach to digital assets. An example is the struggle for whether a particular digitally asset is a security under the notorious Howey test, and thus subject to SEC’s whims or another, and thus subject to the various dictates of any other regulators (CFTC? CFPB? State bank or money transfer regulator?).
We are all familiar with the office issuers of digital assets have reviewed to avoid Kafka-Esque Sec experience. Even tradfi issuers of securities do their best to take advantage of the many exceptions to SEC registration when they can. SEC supervision is an overly expensive and cumbersome process, especially for newer and smaller businesses. SEC has been spectacularly unsuccessful over the years of correct scaling of registration requirements to the size of the extent of newer and smaller companies.
The proposed bills would allow issuers to choose between 55 different supervisory authorities by establishing themselves in the right jurisdiction with the right kind of charter. In addition to the alphabets soup at the federal level (FDIC, OCC, FED, NCUA and for Security StableCoins, SEC), stableCOin issuers could also choose a state regulator. What could go wrong with a choice of 55 different regulators? Lots of things.
First, there is the danger of a race to the bottom. StableCOin issuers will be tempted to select the regulator with the limp and least expensive supervision. This increases the chances that the regulators will miss something important. To remedy this, the bills require the Minister of Finance to confirm that a state’s regulation is “essentially similar” as the federal regulation. If it is “substantially similar” why do it bother with such redundancy? The tax chamber must also undergo a formal decision -making process to provide principles for establishing considerable equality. Talk about a duplicative waste of resources!
But wait, as in a good infomercial, there is more! More waste and redundancy, that is. The house bill requires OCC, FDIC, and fed to participate in a joint decision -making in consultation with the state’s regulators on capital requirements for stablecoins. Any veteran of joint decision making can testify what long and painful process it is for different federal agencies to work together on a common decision -making process.
Common roll macings continue very slowly as it is a long, slow and often contentious process to reach agreement between agencies. A survivor of such a common decision making related to me an incident where a shouting battle between employees in the various agencies almost led to a fist -fist fighting. Congress can set deadlines for decision, but there is usually no penalty if an agency dampens for years earlier a deadline.
When we talk about peat matches, stableecoins that pay interest are not covered. Who regulates them? A stableecoin that is a “security” is also not covered by the bills. Such coins are presumably regulated by sec. We can expect regulators and courts to be incessantly violating whether a future stablecoin-like product is regulated by one of the 55 stableCOin regulators or by SEC or CFTC or CFPB or another.
At a time when the DODE administration says government agencies in its bungling attempts to eliminate waste and redundancy, it is an absurd contradiction to overlapping regulators who are jockey for position and duel in common rules, an absurd contradiction. Congress has to choose a single regulator and get rid of the common rules and state loopholes.
Of course, before we talk about who and how to regulate stableecoins, we need to be aware of why we regulate stablecoins. This will help find out the best approach to stableecoins regulation. In general, financial regulation has some objectives of common sense:
- The economy does not die when something bad happens.
- Customers are protected when an intermediary fails.
- The economy can grow and be stable.
- Market participants have the information they need to make good decisions.
- Scammers do not sell fake instruments.
- Meditors who have customer assets can trust.
- The prices are fair and are not manipulated.
Stableecoins are an important innovation in the global payment system. They help cement the role of the dollar in the global economy. They are likely to grow significantly from their current size and become systemically important. The lack of a very large stableecoin could transfer distress throughout the economy.
Those who lose funds in such a failure could again default on their obligations and threaten to reduce even other entities without direct possessions of stablecoins. A race on a stableecoin would make it dump its stocks of US treasuries and cause distress in the treasury market. This is the epitome of systemic risk and it must be monitored and controlled by our de facto Systemic risk regulator, bold.
Congress can and should solve the deficiencies in the stable genius bills. Congress must choose bold as the individual regulator for stableecoins. Interest-bearing stableecoins should be brought into the stablecoin regulatory regime. These corrections can be performed simply and immediately to the existing texts. Congress should also begin to think about how to solve our dysfunctional regulatory structure later.
A more intelligent and rapid legislative structure would have understood the many benefits of blockchain technology faster and come up with appropriate ways to promote innovation safely and secure American leadership. We need to start the discussion on how to best do this. Financial technology will continue to develop and our outdated regulatory structure will inhibit this innovation unless we solve it and soon.
