October 22, 2021

Biden Administration Considers Regulation For Stablecoin Issuers 

There are reports that the Biden administration is considering new regulations for stablecoin issuers. This will involve a new legal framework that would place stablecoin issuers and banks in the same category. If this report is true, there are unanswered questions about the regulation of cryptocurrency in the country.

The Wall Street Journal reported on Friday that the administration is taking steps to convince Congress to create a new ‘special purpose charter’ meant for stablecoin issuers and other companies within the same category. The new legislation is to be tailored for the new business models, such as the stablecoin issuers. At the moment, it is not certain if the Congress will agree with the Biden administration, and if it does, how the legislation will turn out is unknown.

Regulating Stablecoin Issuers Like Banks

There has been debates among policymakers over stablecoin in the past few months because it is believed that the stablecoins are not well regulated. Jerome Powell is the Federal Reserve Chairman, and he talked to the Financial Services Committee earlier this week. He was of the opinion that stablecoins should be regulated using the same criteria as money market funds like bank deposits. However, he maintained that they are not considering a blanket ban on cryptocurrency like Bitcoin (BTC) or other digital assets. Stablecoins include coins like Tether (USDT), USDC coin (USDC), Binance USD (BUSD), etc.

A joint research paper between the Fed and Yale University was published in July titled ‘Taming Wildcat Stablecoins’. In the 49-page paper, the authors gave two possible regulatory frameworks for stablecoins. It was argued that policymakers have just two options with regard to regulation of stablecoin. The options are to either make stablecoins equivalent to public money or impose high tax on the stablecoins via central bank digital currency.

Reserve Of Stablecoin Issuers 

Stablecoins are digital currencies that are pegged to fiat money like the United States Dollars. They can be pegged wholly or in part to fiat money. The market size of stablecoin has increased to over $128 billion according to the latest figures. Tether (USDT) is the leader of the stablecoin market with over half of the market. Other leading stablecoin include USDC coin (USDC) and Binance USD (BUSD). 

With the growth of the stablecoin market, questions have been asked over the liquidity and reserve status of the stablecoin issuers. This is of concern because stablecoin issuers claim that their stablecoins are pegged to a fiat currency, certainty about the veracity of this claim is important.

Tether Holdings Ltd. published it’s full reserve breakdown in May for the first time in the company’s existence. This was after the agreement with the Office of the New York Attorney General to publish reports periodically on its currency reserve. This is an important step towards ensuring transparency and accountability by the stablecoin issuers, and this will ensure more safety for buyers of stablecoin, as they can be certain that there is a reserve of fiat currency to support the stablecoins.