Congressman Josh Gottheimer released on Tuesday, Feb. 15 a draft of the Stablecoin Innovation and Protection Act of 2022, a piece of legislation that aims to define stablecoins and to offer a legal framework where stablecoin issuers could operate.
“The expansion of cryptocurrency offers tremendous potential value for our economy. But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers,” said Gottheimer.
The draft takes a balanced risk-based approach to one of the most innovative topics of our times — this is probably what could make the bill gain support to at least be debated, and perhaps even passed. The draft bill is just a 9-page document laying down basic definitions and finding a place for stablecoins to fit within the current federal regulatory framework, rather than crafting a new one.
Instead of trying to regulate issues that may raise flags among policymakers, the Stablecoin Innovation and Protection Act seeks to provide a safe harbor to stablecoins issuers, either banks or non-banks, to operate legally in the United States.
For instance, the bill defines stablecoins as a “cryptocurrency redeemable on demand on a one-to-one basis for U.S. dollars and issued by one of the two qualified issuers.” This definition would have two implications. First, it would reduce the volatility of a stablecoin and therefore it could be used as a means of payment. Second, as a “currency,” a stablecoin wouldn’t be considered either a security or a derivative, and it wouldn’t be subject to registration and disclosure requirements like other cryptocurrencies under securities laws.
To avoid any potential conflict with other agencies, the draft bill establishes that the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) would have complete authority to regulate cryptocurrencies or other privately-issued digital financial instruments that are not qualified stablecoins. It would be the Office of the Comptroller of the Currency (OCC) who would have the authority to oversee stablecoin issuers. This is probably the first attempt to allocate the supervision of digital assets to a specific agency.
Read more: US House Urged to Pass New Legislation on Stablecoins
From here, the bill takes a more conservative approach, trying to bring stablecoins under banking regulations. While the additional requirements may impose limits that stablecoin issuers may not be satisfied with, it also provides a safer environment for issuers to launch their stablecoins and to gain enough trust among policymakers and consumers.
The bill proposes two types of stablecoin issuers: banks and non-banks. For the latter, there is a requirement that the issuers should maintain collateral in cash or securities issued by the federal government in an amount equal to 100% of the value of outstanding qualified stablecoin issued by the non-bank issuer — or even higher if the OCC determines appropriate.
Additionally, the non-bank stablecoin issuers should also participate in an insurance program, and it may be subject to further requirements that the OCC could determine through regulation, such as leverage ratios, auditing, anti-money laundering and redemptions requirements — and perhaps most innovative, interoperability requirements to ensure that all stablecoins in the market can easily be transferred.
Overall, the draft bill doesn´t seek to regulate every single aspect of stablecoins, but rather to provide the foundations of a legal framework that could bring stablecoins into a regulated space.
Read also: Treasury Official Tells Senate Hearing Stablecoin Regulation Should Be ‘Clear and Consistent’
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