Last week, Congresswoman and “Squad” member Rashida Tlaib (D-Mich.) sent Crypto Twitter into a tizzy with the following proposal:
The bill’s academic/think tank proponents followed up with posts such as this:
There’s a lot to unpack here and a lot of crossed wires, mostly due to (I suspect) the fact that the proponents of the bill are MMT theorists and not engineers. While they may have fairly elaborate theories about what function cryptocurrency serves (and in particular how it has the potential to undermine their macro strategy of money printer go brr), they may have a somewhat looser grip on how cryptocurrency actually works.
1. What the bill does
I preface this essay by saying that stablecoin issuers should be licensed. What sort of license is anybody’s guess. Currently I should think a money transmitter license would be the thing but there’s no reason in principle why an issuer shouldn’t go get a bank license as well.
The STABLE Act does way more than that, and appears to require any blockchain that runs stablecoin code to be licensed, among other things. For example:
- The bill outlaws the issuance of a stablecoin otherwise than by “an insured depository instiution that is a member of the Federal Reserve System,” i.e., a bank.
- The bill bans the issuance of stablecoins, provision of “stablecoin-related” services, or “otherwise engaging in any stablecoin-related commercial activity,” including activity involving stablecoins issued by other persons, without obtaining written approval in advance from the appropriate federal banking agency.
- The bill creates a requirement for preapproval, among other things, for “otherwise engaging in any stablecoin-related commercial activity.”
It’s a swing and a miss:
- First, the largest stablecoins available in the marketplace – which shall remain nameless for the purposes of this blog post – have lists of compliance issues a mile long already. Adding another requirement doesn’t answer the question of how we get non-compliant stablecoins to adhere to the rules that currently exist.
- Second, one of the stated purposes of this bill is to protect underserved communities from being discriminated against by stablecoin issuers. To this I would reply that any stablecoin issuer worth doing business with will operate in New York State and need to comply with the provisions of the N.Y. Human Rights Law, which prohibits discrimination. (For the disabled, I note also that the Second Circuit federal court thinks that under Title III of the Americans With Disabilities Act there is no requirement for a “public accommodation” to have a physical location, so that aspect of equal access might also be covered by New York-based stablecoin providers.) Additionally, given the regulatory problems with some existing stablecoins, and in particular their role as dollar liquidity providers for offshore exchanges with lax know-your-customer enforcement that can’t get banking access, it is likely those who would access…