The United States remains a world leader in cryptocurrency industry adoption thanks to the work of Senator Patrick Toomey, with the White House at the forefront of cryptocurrency regulation. Last year, President Joe Biden signed a $1.2 trillion bipartisan infrastructure bill — and included new legislation that would affect the cryptocurrency sector. And more recently, the The President of the United States announced a “whole government” approach to regulating cryptocurrency in a blanket executive order directing multiple government agencies to answer specific questions about cryptocurrencies. Over the past year, the US has clearly been trying to help make the cryptocurrency industry more sustainable, which will make it significantly easier for cryptocurrency platforms to operate.

But the Stablecoin Reserve Transparency and Uniform Secure Transactions Act of 2022, nicknamed the Stablecoin TRUST Act for short, makes the US probably the only country, or at least the only Western country, that fully regulates and accepts stablecoins as an official part of the financial and banking system.

Introduced by Senator Toomey, the ranking member of the Senate Banking Committee, the Stablecoin TRUST Act requires stablecoin issuers to adhere to certain rules. The provisions of the law are broad and complete. The bill clarifies that payment stablecoins are not securities, which is a great thing for the industry. The bill also refers to stablecoins as “payment stablecoins” — digital assets that can be “directly convertible into fiat currency by the issuer” and that have a “stable value relative to a fiat currency or currencies.” “.

Related: Regulations set the table for more talent, capital and development in the cryptocurrency industry

Stablecoin issuers would have to choose between being licensed by the Office of the Comptroller of the Currency (OCC), a state money transmitter, a similar license, or a traditional bank charter. Stablecoin issuers operating in the US would be subject to a disclosure regime that would require them to ensure regular audits, spell out clear swap policies, and specify what actually backs the stablecoins they issue.

Any need for a US CBDC?

With the bill’s discussion draft circulating and getting comments in Congress, I beg the question: If the act becomes law, would the US government still need to develop a central bank digital currency (CBDC)? , or what some call the digital dollar?

There seems to be no need for the US to develop a digital dollar if private stablecoin issuers are accepted as part of the broader financial system. Would it be necessary for the government to have private and public digital dollars, one issued by providers and one by the federal government? These questions will play out in the coming months as US regulators continue to address them.

But it is clear that part of Biden’s executive order includes giving “urgency to the research and development of a potential United States CBDC, should issuance be deemed to be in the national interest,” according to an accompanying fact sheet. published by the White House.

Related: Qualifying: US Congress Considers E-Cash an Alternative to CBDCs

It would be the first time in history that a nation allows both private stablecoin issuers and government-issued stablecoins to operate in a single market. Some countries have forbidden private stablecoins because they want to promote their own CBDC, but the US is taking a different route that could drive significant innovation in the stablecoin industry and of course make it more transparent and sustainable. But there are problems, with possible serious consequences.

Interest rates will be capped: wait for consolidation

The Stablecoin TRUST Law regulates what assets can back your USD-pegged stablecoins, which would be cash, where interest rates are incredibly low, and Treasure letters (T-Bills), where interest rates aren’t much better. This poses a major problem for both current stablecoin issuers and future players, as they will not be able to earn higher interest on riskier assets.

Right now, certain stablecoin issuers back most of their tokens with higher-paying commercial paper, which cannot be assessed without more transparency and auditing. According USDT the issuer of stablecoin Tether on March 31, 2021, more than 65% of its reserves were backed by commercial paper, only about 4% were backed by cash, and about 3% were backed by T-Bills. Therefore, Tether and other stablecoin providers will have to completely change their reserve composition to align with the stablecoin TRUST Act if it becomes law.

Competition may decrease in the stablecoin industry and we may see some consolidation. Since stablecoin issuers will not be able to use higher-paying assets to generate high interest, they will find it difficult to make a profit while managing compliance risk, HR taxes, and general administration costs.

Related: Regulators are coming for stablecoins, but what should they start with?

The big players will find a way to make it work, most likely, but smaller stablecoin issuers will find it hard to turn a profit if the bill becomes law.

Let’s get the Stablecoin Trust Act passed

Although the Stablecoin TRUST Act may set some barriers for new entrants into the industry, I believe it will make the industry more transparent and sustainable. Enforcing disclosure and redemption requirements for USD stablecoins will make them significantly safer and more transparent going forward.

One of the best parts of the Stablecoin TRUST Act is that it truly brings stablecoins into the traditional US financial system. Issuers licensed by the OCC will have access to the Federal Reserve’s master account system, giving them it would give the ability to take advantage of the broader financial system and greater amounts of liquidity in transactions.

There is still some time left before the Stablecoin TRUST Act becomes law, but if it stays true to its current form, the US will continue to set the gold standard in cryptocurrency regulation. So let’s work together to make sure the act becomes law.

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