The United States continues to be a global leader in the cryptocurrency industry due to the work of Sen. Patrick Toomey, with the White House as head of crypto regulation. Last year, President Joe Biden signed a $ 1.2 trillion bipartisan infrastructure bill – and includes a number of new legislation that will affect the crypto sector. And more recently, the The U.S. president announced an “all-government” approach. to regulate cryptocurrency in right-on-board executive orders directing several government agencies to answer specific questions on cryptocurrencies. The U.S. for the past year has clearly sought to help make the crypto industry more sustainable, which will make its cryptocurrency platform easier to use.
But Stablecoin’s Transparency of Reserves and the Uniform Secure Transactions Act of 2022, nicknamed The Stablecoin TRUST Act for short, makes it possible for the U.S. to be the only country, or at least the only Western country, to fully regulate and accept stablecoins as an official part of the financial and banking system.
Introduced by Sen. Toomey, a ranking member of the Senate Banking Committee, the Stablecoin TRUST Act forces stablecoin issuers to comply with certain rules. The regulations in the act are sweeping and comprehensive. The bill clarifies that payment stablecoin is not a security, which is good for the industry. The bill also refers to stablecoins as “payment stablecoins” – digital assets that can be “converted directly into fiat currency by the issuer of securities” and have “a stable value relative to the currency or fiat currency.”
Stablecoin issuers must choose between securing an Office of the Oversight Office (OCC) license, a state money transmitter, or a similar license or traditional bank charter. Issuers of Stablecoin securities operating in the U.S. will be subject to a disclosure regime that requires them to secure regular audits, detail a clear redemption policy and determine what actually supports the stablecoin being issued.
Do you need US CBDC?
With the draft discussion of the bill spreading and gaining feedback in congress, I asked: If the act becomes law, should the U.S. government still have to develop a central bank digital currency (CBDC), or what is the digital dollar?
There is no need for the U.S. to develop a digital dollar if private stablecoin issuers are accepted as part of a broader financial system. Should the government have private and public digital dollars, issued by providers and others by the federal government? The question will be raised in the coming months as U.S. regulators continue to address it.
But it is clear that part of Biden’s executive order includes placing “the potential for research and development of the U.S. CBDC, if the publication is considered in the national interest,” according to the attached fact sheet. released by the White House.
This will be the first time in history when a country allows private stablecoin issuers and government -issued stablecoin to be used in a single market. Some countries have prohibited private stablecoins because they want to promote their own CBDC, but the U.S. is taking a different route that could spur significant innovation in the stablecoin industry – and, of course, make it more transparent and sustainable. But there are problems, which can have serious consequences.
Interest rates will be limited – expect consolidation
The Stablecoin TRUST Act regulates what assets can produce stablecoin pegged in USD, which will be cash, where interest rates are very low, and Treasury Bills (T-Bills), where interest rates are no better. This poses a major problem for current stablecoin issuers and future players, as they will not be able to earn higher interest from cleaner assets.
Now, certain stablecoin issuers reclaim most tokens with higher -paying commercial papers, which cannot be evaluated without transparency and audit. according to USDT stablecoin issuer Tether as of March 31, 2021, more than 65% of its reserves are backed by commercial paper, only about 4% are backed by cash, and about 3% are backed by T-Bills. Hence, Tether and other stablecoin providers must change the composition of their reserves to comply with the Stablecoin TRUST Act if it becomes law.
Competition may be slowing down in the stablecoin industry and we may see some consolidation. Since issuers of stablecoin securities will not be able to use higher -paying assets to generate high interest rates, it will be difficult to make a profit when managing compliance risk, HR taxes and general management costs.
Big players will find ways to make it work, more than likely, but those issuing smaller stablecoin securities will have a hard time making a profit if the bill becomes law.
Let’s get the Stablecoin Trust Act passed
Although the Stablecoin TRUST Act may set up some barriers for new entrants to the industry, I am confident that the industry will be more transparent and sustainable. Implementing the disclosure and redemption requirements for USD stablecoin will make it more secure and transparent in the future.
One of the best parts about the Stablecoin TRUST Act is that it actually brings stablecoin into the traditional U.S. financial system. OCC -licensed issuers of securities will have access to the Federal Reserve’s master account system, which will give them the ability to tap into more financial systems and greater liquidity in transactions.
It was still some time before the Stablecoin TRUST Act became law, but if it remains valid in its current form, the U.S. will continue to set the gold standard in cryptocurrency regulation. So, let’s work together to make the act legal.
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The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the opinions and opinions of Cointelegraph.
Raymond Hsu as co-founder and CEO at Cabital, a cryptocurrency wealth management platform. Prior to founding Cabital in 2020, Raymond worked at fintech and traditional banking institutions, including Citibank, Standard Chartered, eBay and Airwallex.