New federal bill targets stablecoins, including Facebook’s Libra

By Nicholas Marinoff

Are stablecoins, such as Facebook’s Libra, securities under US federal law? The SEC thinks they might be. And now two members of Congress want to make it crystal clear.

Rep. Sylvia Garcia (D-TX) and Rep. Lance Gooden (R-TX), both members of the House Financial Services Committee, introduced a new bill yesterday called the “Managed Stablecoins and Securities Act of 2019.” The bill, if passed, would classify all “managed stablecoins” as investment contracts, and therefore securities.

The bill defines “managed stablecoins” as digital assets whose market value is determined by “reference to the value of a pool or basket of assets, including digital assets, held, designated, or managed by one or more persons.”

In a statement, Rep. Garcia made clear that the legislation specifically targets Facebook’s Libra, and said that it and other stablecoins are “clearly securities under existing law.” The bill, said Garcia, merely removes any ambiguity. “Bringing clarity to the regulatory structure of these digital assets protects consumers and ensures proper government oversight going forward,” she said.

Facebook executives, such as CEO Mark Zuckerberg and the company’s head of blockchain David Marcus, would likely disagree. Marcus, who helped create Libra, has in the past insisted that Libra isn’t a stablecoin, but rather a digital payment system akin to PayPal and similar platforms, according to CNBC.

Nevertheless, several global regulatory bodies, including the International Organization of Securities Commissions (IOSCO), say that Libra poses regulatory risks and should be treated as a security.

For Gooden, the Managed Stablecoins Act represents a desire to ensure American investors better understand crypto-assets. “Everyday investors need to know they can trust the issuers behind their financial assets,” he said in a statement. “This bill would bring them the security they deserve by applying the laws we use to regulate financial securities to the new breed of digital currencies.”

Libra has had a rough time with regulators ever since it was first announced last summer. Several of Libra’s corporate partners have since abandoned the project, including Visa, MasterCard, and PayPal. Zuckerberg told Congress last month that Facebook itself would withdraw from the Libra Association if the project did not receive full regulatory approval.

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