Stablecoins Get Another Headache In US, Ethereum Camp Feels Attacked Too
The stablecoin regulation act proposed in the US Congress has once again stressed an important difference between centralized and decentralized projects in terms of regulation. (Updated at 13:22 UTC: updates in bold.)
There is much discussion currently in the Cryptoverse over the recent announcement of an act that seeks to regulate stablecoins within the US. A major one is that the act proves once more that decentralized options need to be developed more, as anything that is remotely centralized will be supressed by heavy regulation. "This is why it’s imperative to focus on *truly* decentralized and permissionless finance down the entire stack," argued Eric Conner, a product researcher at blockchain startup Gnosis. "Any centralized points of failure will be stifled by regulation written by those who do not understand what we are building."
Bitcoin educator Andreas M. Antonopoulos also argued that the act won't be enacted, but what's interesting about it is that "it can only apply, by definition, to centralized fiat-backed stablecoins, therefore making decentralized alternatives even more attractive."
2/ I don't like having fewer options for my money, but OTOH there is a reason why OGs push for things like denominating value in sats instead of USD....ultimately, peggedcoins are another form of slavery to fiat & tech companies, are centralized & are thus fair game for regs...— _gabrielShapir0 (@lex_node) December 3, 2020
The restrictions posed by the bill
This week, US Congresswoman Rashida Tlaib, with Congressmen Jesús "Chuy" García and Chairman of Task Force on Financial Technology Rep. Stephen Lynch, introduced the so-called 'Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act,' aka the 'Stablecoin Classification and Regulation Act of 2020.'
The announcement said that this act would "protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other stablecoins currently offered in the market, by regulating their issuance and related commercial activities," which they find particularly necessary during the COVID-19 pandemic.
However, significantly for all the current and future issuers of stablecoins wanting to do business in the US, they would have to obtain a banking charter; get an approval from the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and appropriate Federal banking agency; provide conduct an ongoing analysis of any potential systemic risk; and 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.
But many, such as Meltem Demirors, CoinShares' Chief Strategy Officer, argued that the act would have the opposite effect of what the trio stated they want to accomplish.
this has the OPPOSITE effect— Meltem Demirors (@Melt_Dem) December 2, 2020
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.
please, no more clowning 🤡 https://t.co/IbjqXJpT4F
The 116th Congress will end on January 3, which is the final deadline for this regulation to pass.
@davidgerard @haydentiff @stf18 @djangobits @galgitron @powers_chris @RashidaTlaib @ChuyForCongress @RepLynch My un… https://t.co/T0RmVK0MJ0— Rohan Grey (@rohangrey)
"Diem," or the Diem Association, is the new name of the Facebook-backed Libra Association, responsible for developing the Libra stablecoin project. As reported last week, Libra is rumored to launch as a single coin backed 1:1 to USD reserves as early as January, 2021.
"We are reading the Stablecoin Classification and Regulation Act of 2020. At this time, we have no comment on its provisions or its prospects for passage in the current session of the US Congress. As more governments debate public policy around stablecoins, Tether will be ready to respond and offer the benefit of its success and experience in the space to interested and appropriate parties," Stuart Hoegner, General Counsel at Tether, the issuer of the most popular stablecoin, USDT, told Cryptonews.com.
Does the regulations impact Bitcoin and Ethereum?
This initiative has prompted numerous other debates within the Cryptoverse on highly complex matters, raising quite a few unanswered questions. Among these, there is a subnarrative forming that this regulation might be relevant for Ethereum (ETH) too, while Bitcoin (BTC) might be off the hook.
The basis of this very complex and unresolved argument are nodes, who runs them, what's there done by choice, what they're processing, and would the act make running nodes illegal - among various other layered questions. "Someone could attack Ethereum by spamming it with millions of complex transactions that result in stablecoin deposits," said Uniswap founder Hayden Adams. "Ethereum would grind to a halt." But Rohan Grey, a third-year J.S.D. (Doctor of Juridical Science) Candidate at Cornell Law School, replied to those arguing this and similar positions, stating "You're taking the Ethereum network as a fixed variable and saying that it's impossible for node validators on it to know what transactions they are verifying. I'm saying running Ethereum itself is a *choice* and if that's an issue then change the code or run a diff network."
Nothing is being regulated out of existence. The bill requires actors that issue stablecoins, ie deposits, to get a deposit license.— Rohan Grey (@rohangrey) December 3, 2020
At the same time, Grey agreed that BTC's properties would keep it unaffected by this regulation.
Indeed. This is a crucial distinction and note that while I have no particular love for bitcoin, this bill in no way tries to regulate it out of existence or anything else precisely b/c it isn't a systemic risk to monetary system in the same way as stablecoins.— Rohan Grey (@rohangrey) December 3, 2020
The long discussion between Grey, OpenLaw CEO Aaron Wright and others was stopped for the lack of agreement, with Wright warning that US might be put at a competitive disadvantage.
We’ll have to agree to disagree. I think it’s increasingly hard to argue that public blockchains aren’t the future financial infrastructure.— Aaron Wright (@awrigh01) December 3, 2020
Trying to stop that will just put the US at a competitive disadvantage and likely do more harm than good in the long run.
But while Grey argued that it's not uncommon that "new entrants into the financial space believed themselves uniquely worthy of exemptions from regulatory scrutiny and public accountability," there are opinions that centralized stablecoins are not innovative, and possibly need to be regulated, as some find their issuers are slowly turning into traditional institutions anyway - but it still leaves the matter of decentralized stablecoins like DAI.
"The draft bill is extremely broad, applying to "any person" who issues any type of stablecoin or "otherwise engage[s] in any stablecoin-related commercial activity[.]'," said Jake Chervinsky, General Counsel at Compound Finance. "So technically, it would require a banking charter for anyone who wants to mint DAI as well."
It's a joke and it represents a power-mad authoritarianism of US universal jurisdiction.— Andreas ☮ 🌈 ⚛ ⚖ 🌐 📡 📖 📹 🔑 🛩 (@aantonop) December 3, 2020
Precisely why decentralized systems are needed and precisely what they're up against.
Other discussions include questions over what ambiguous projects could be defined as stablecoins, could the act eventually lead to banning crypto, and whether the perceived harms the authorities are trying to regulate are actually "inherent in the existing financial system that cryptocurrencies are designed to replace."
So-called "stablecoins" are not cryptocurrencies.— Luke Dashjr aka @[email protected] (@LukeDashjr) December 3, 2020
They're just competitors of PayPal.
Existing regulations should apply already...?
Cryptocurrencies don't have providers.
Sincerely, the longest active cryptocurrency developer in the world.
The guy trying to regulate our stablecoins also wanted to print a trillion dollar coin (two of them, actually).— cyrus.ismoney.eth (@cyounessi1) December 3, 2020
Imagine being worried about deposit risk but then also being ok with the government bailing themselves out with a trillion dollar coin. https://t.co/YSXyPzAdz5
And force them to seek regulatory arbitrage overseas with the exception of the select few projects who are financed… https://t.co/Qun7S98oDv— Ma/ya Zehavi (@mayazi)
The looming issue in the Stable Bill is the impact on DeFi/crypto protocols that facilitate stablecoin adjacent tra… https://t.co/NmXEEsLmL2— Ma/ya Zehavi (@mayazi)
Crypto regulation in BASIC— Andreas ☮ 🌈 ⚛ ⚖ 🌐 📡 📖 📹 🔑 🛩 (@aantonop) December 3, 2020
10. Banks suck
20. Crypto works better
30. Banks fear competition, appeal to Govt regulators
40. Regulators freak out
50. Govts regulate the parts of crypto that look like banks
60. Crypto evolves to look less like banks
70. GOTO 10