In brief

  • Three members of Congress have proposed a bill to regulate stablecoins.
  • The STABLE Act would hold stablecoin issuers to some of the same standards as banks.
  • Some cryptocurrency advocates think it will stifle innovation and further marginalize underbanked communities.

It's the dying days of the 116th Congress, which ends on January 3, 2021. Any bills that haven't become law by then will die with it.

But that's still plenty of time to kick the hornet's nest that is Crypto Twitter!

Today, Congresswoman Rashida Tlaib announced the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, which is co-sponsored by Representative Jesús “Chuy” García and Representative Stephen Lynch.

The proposed bill, which has almost no shot of becoming law, riled up cryptocurrency enthusiasts on Wednesday night.

That's because the bill, which takes direct aim at stablecoin companies such as Tether as well as the SC-curious Facebook, would require any company issuing a stablecoin to have a banking charter and be approved by the Federal Reserve and FDIC—no small feat for digital asset firms.

Stablecoins are a type of cryptocurrency whose value is pegged to another asset, often the US dollar.

The bill is ostensibly written to protect lower- and moderate-income consumers who have found themselves locked out of the traditional banking sector. Tlaib et al are pressing the case for regulation that prevents cryptocurrency companies from adopting the bad habits of big banks and further marginalizes vulnerable populations.

Meltem Demirors, CoinShares' Chief Strategy Officer, said the bill would do the opposite of what it intends:

"Cryptocurrencies LOWER the cost of servicing populations that have historically been excluded from the banking sector," she wrote. "Raising costs and compliance obligations forces companies to cut access for unprofitable clientele."

Jeremy Allaire, CEO of Circle, which issues the USDC stablecoin, played up innovation that has come from outside traditional banking: "The STABLE Act would represent a huge step backwards for digital currency innovation in the United States, limiting the accelerating progress of both the blockchain and fintech industry."

Willamette University College of Law Assistant Professor Rohan Grey, who provided input on the bill, shot back that innovators need guardrails. "Oh the purpose of regulations is to give industry players whatever they want?" he wrote. "Some people want to act like ignorance of banking history is a principled position."

Meanwhile, cadets in the XRP Army think this isn't so bad—especially the part that mandates stablecoins must maintain $1 dollar in reserve for every stablecoin issued.

With the US likely headed toward another two years of divided government, this bill may not be talked about much beyond this week. Instead, cryptocurrency users should expect government's version of stability—legislative and regulatory gridlock—with or without the coins.