Even though many industries have been affected by the pandemic, it is not the same for cryptocurrencies. The pandemic has pumped them up so much for the plight of decentralized investments.

Stablecoins, unlike regular cryptocurrencies, is backed by other assets, which makes them safer and less volatile. This has made them gain popularity both in the investment communities and regulatory bodies. However, they may not be as profitable as the regular digital assets as they are not very volatile. Hence, they do not experience significant price changes.

Even though cryptocurrencies have interested genuine users, it has also attracted unscrupulous groups or individuals who have misused them, such as money laundering. This created significant interest from lawmakers.

Stablecoin Regulation

Even though exchanges regulate stablecoins, there are also regulations made governing them. In July, the Office of the Comptroller of Currency (OCC) gave guidance on banking institutions’ crypto custody.

Just last week, STABLE ACT was created, a new bill that intends to regulate the issuance of stablecoins. This created a lot of fuss in the crypto community.

The STABLE ACT

STABLE Act (Stablecoin Tethering and Bank Licensing Enforcement) was proposed by three US congressional representatives.

Unlike OCC, which was so simple, Stable ACT is more complicated. The Act requires that stablecoin issuers give the Federal Reserve their bank charters and reserve funds equivalent to their stablecoin amount. The reserves should have a dollar amount equal to the stablecoin amount. Stablecoin issuers will also need to secure FDIC insurance. The Federal Reserve will perform audits to confirm if the company is compliant. Operation without compliance will attract fines up to $1000,000 and other criminal penalties.

The requirements intend to protect low and moderate-income (LMI) consumers from pump and dump schemes and unscrupulous coin issuers in general. The bill’s aim is also to safeguard underserved communities from discrimination from stablecoin issuers.

The idea of regulating stablecoins stems from the fact that they act as money hence should be treated as money. The bill’s downside is that it will limit innovation as it will create barriers to entry, which will shut out a lot of potentials.

With the current growth in the crypto scene, it is clear that there will be an expected interest to regulate stablecoins as their user base will be so high.

Why the bill created war?

According to the United States regulation, stablecoin companies act as trust companies, fiduciaries, or agents since the coins do not have a frequent or wide price change. That means they do not require to have banking charters or funds with the Federal Reserve.

Many issuers of stablecoins have criticized the move citing that it will kill innovation in the United States. According to the CEO of Circle, Jeremy Allaire, the bill is not consistent with supporting innovation. The CEO of crypto advocacy group Blockchain Association Kristin Smith added that the regulation would only favor the big financial institutions while limiting the invention.

The regulations will filter out issuers who do not have the resources for compliance. This means many will be left out, contrary to the nature of decentralized currencies.

Many crypto enthusiasts believe that the bill will not pass in congress but will stir arguments that lead to a new set of regulatory battles to define the crypto industry.

As much as the bill was created to protect consumers, it has had a different reception in the market. Stablecoins are just the beginning of many crypto regulation wars that are bound to happen in the future.