US draft bill on stablecoins places issuers like Tether under the Federal Reserve oversight

A new draft bill that provides a stablecoin framework in the United States will see private issuers such as Circle, the issuer of USDC, and Tether Holding, the firm behind USDT, placed under the Federal Reserve (Fed) oversight.

The Fed is the country’s central bank guiding the monetary policy in the world’s top economy.

The draft bill on a stablecoin framework in the U.S.

The bill, published from the House of Representatives’ document repository, will also be discussed next week on April 19. 

Stablecoins are crypto tokens designed to track the price of a stable asset. Popular stablecoins are those pegged to the USD, a reserve currency.

As of writing on April 16, USDT by Tether Holding is the largest, with a market cap of $80.9b.

From the document, there is clarity of where exactly stablecoin issuers fall. For instance, the bill says that all non-banking institutions, that is, those which are “not an insured depository institution”, such as Circle, will be under the Federal Reserve oversight. This means they have to register, failure to which they have to pay a $1 million fine, or its executives face five years in prison, or both. 

Stablecoin legislation has been drafted in Congress

I read the bill.

TL;DR decentralized stables become illegal in the US (DAI, LUSD, RAI, etc. become illegal🚨) while centralized stables, defi, Ethereum, and ETH win big.

High-level summary⬇️
– decentralized stables become…

— Ryan Berckmans ryanb.eth🦇🔊 (@ryanberckmans) April 16, 2023

The draft bill directs all USD-related stablecoin issuers out of the United States to seek registration before proceeding with their operations in the country. 

Meanwhile, under the draft bill, insured financial institutions seeking to issue stablecoins will fall under the necessary Federal banking agency supervision as spelled out in the Federal Deposit Insurance Act.

On April 19, policymakers will discuss the bill and will look to approve some of its requests. A consideration will be the technical capacity of the issuer and whether their proposal promotes inclusion and is innovative. 

On reserves backing the stablecoin, requests will include whether the applicant can maintain its reserve in USD, Federal Reserve Notes, short-maturing Treasuries, short-maturing repurchase agreements, or central bank deposits.

Regulators cracking down on crypto firms

In recent months, the Securities and Exchange Commission (SEC) has been cracking down on stablecoin issuers and crypto firms. 

In March, Changpeng Zhao, the CEO of Binance, said the regulator sent a Wells Notice letter to Paxos, the issuer of BUSD. At the same time, New York authorities directed Paxos to stop issuing new coins.

The SEC also opposed Binance’s acquisition of Voyager. 

Earlier, the New York Office of the Attorney General sued KuCoin for failing to register the exchange.