The Regulatory Crackdown Continues With New Stablecoin Bill

As has been the case in 2023, this week was a week chock-full of regulatory news. And, as is usually the case with regulatory news, none of it was particularly good for our beloved industry.

Alas, at CoinSnacks, we bring you both the good and bad. Thus, let’s break down what mischief the regulators subjected us to this week.

A New Stablecoin Bill

As frequent readers of CoinSnacks know, stablecoin regulation is nothing new. So, you’d be forgiven for rolling your eyes at another stablecoin bill

This is an area that the powers-to-be have wanted to get their hands on for a while now, publicly to prevent another collapse a la Luna, but privately because stablecoins present a threat to their CBDC dreams.

So, nobody was really surprised when the House Financial Service Committee came out with a new stablecoin bill.

The main things you need to know about the bill are:

• Redeemable fully-backed stablecoins issued by licensed companies like USDC would be relatively unaffected. The one big change would be that licensed issuers like Circle would not be able to do much with their reserves besides buying US treasuries. This is obviously great for stability, but caps the earnings of stablecoin issuers.

• “Endogenous stablecoins” that “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price” would face a two-year ban. Basically, algorithmic stablecoins like Terra Luna would no longer legally exist.

• Unlicensed stablecoins would become illegal. In effect, this means that all decentralized stablecoins would become illegal unless they gained approval and got regulated from the government, which would kind of defeat the point of a decentralized stablecoin.

So, in summary, the big winners of this proposed bill are the big centralized stablecoins like USDC, while the losers are decentralized stablecoins like DAI, as they will have to either get licensed and risk centralization, or cease to exist.

It is still very early-days as this bill is still just a draft, but it is interesting to see where Congress’s head is at pertaining to one of crypto’s largest verticals.

The SEC Warpath Continues

SEC chair Gary Gensler really seems to have made up his mind. He is going to kill crypto in the United States or die trying, because his horde of blood-sucking vampires took further actions this week to strangle crypto.

First, the SEC confirmed that their proposal last year to widen its view of securities exchanges will include decentralized exchanges. If accepted, this would put the entirety of DeFi under Gensler’s iron grip, and would likely cause most decentralized protocols to seek safe haven elsewhere. It’d be a catastrophe for US crypto development.

Next, the SEC sued crypto exchange Bittrex for violating security laws, despite Bittrex already announcing they are leaving the US because of the regulatory environment. In the suit, the SEC specifically alleges that omise go (OMG), algorand (ALGO), dash (DASH), tokencard (TKN), i-house token (IHT), and naga (NGC) are securities. This is particularly rich considering that Gensler himself previously waxed poetics on the genius of Algorand.

Thankfully, it appears that some in Congress are getting sick of Gensler’s antics, as Congressman Warren Davidson is now calling for his removal.

Sick And Tired Of Being Sick And Tired

This regulatory crackdown is beginning to take its (intended?) toll on the US crypto industry. Increasing amounts of crypto companies are now setting their sights on friendlier waters overseas. Even Coinbase, the premier US crypto company, is not ruling out leaving the US if the regulatory situation doesn’t become clearer.

And that’s the sad part here. The US crypto industry doesn’t want a free-pass, they want clear rules. So far, the government has failed to oblige. Instead, they send Wells Notice after Wells Notice and cut off the industry’s banking access.

It’s an untenable situation, and one that unfortunately appears increasingly likely to end in crypto innovation happening outside the US’s shores.