Every year, the United States government introduces more crypto regulations. As blockchain develops and its potential impact becomes more apparent, Co

Why the Stable Act undermines innovation in the crypto space

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2021-07-19 00:30:05

Every year, the United States government introduces more crypto regulations. As blockchain develops and its potential impact becomes more apparent, Congress introduced the Stable Act (the “Act”) in effort to regulate stablecoin issuers. Stablecoins are a type of cryptocurrency that peg their value to an external reference, such as the US dollar.

Congress introduced the Act to protect consumers from predatory practices and risks posed by digital payment instruments. And of course, Congress will not hesitate to regulate Facebook and its emerging digital currency system, Libra. These are definitely good reasons motivating Congress to act. However, a closer look at the Act and its clauses caused the broader blockchain space to rightfully worry.

Despite good intentions, the Act could have negative effects on not only blockchain innovation but also on the crypto ecosystem. First, it requires “any prospective issuer of a stablecoin to obtain any banking charter” and “any company offering stablecoin services must follow the appropriate banking regulations under their respective jurisdictions.” Essentially, the Act outwardly bans any and all stablecoins not issued by a federal bank. Among others, this would affect (1) Gemini Dollars, (2) USDCs, a consortium of state-licensed money transmitters, and (3) DAI, Ethereum-based smart contracts powering decentralized finance or DeFi.

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