The Stablecoin transparency act has been introduced by Rep. Trey Hollingsworth and Sen. Bill Hagerty.
In brief
- Stablecoins would have to be fully backed by dollars or short-term government securities under the act.
- Stablecoin issuers would have to report audited reports.
Remember the hubbub about being backed by the U.S.? Is that dollar?
Two legislators—Rep. Trey Hollingsworth (R-IN) in the House and Sen. Bill Hagerty (R-TN) in the upper chamber—have introduced a bill designed to make sure that’s never an issue again.
Stable coins would have to be fully backed by a combination of U.S. and other countries. There are dollars and “government securities with maturities less than 12 months. It would make it legal for issuers of stable coins to regularly publish audited reports demonstrating their reserves.
“From whether coins are securities or commodities, to who is in charge of regulating them, those in the cryptocurrency marketplace are navigating significant ambiguity,” says Sen. Hagerty, empathizing with consumers eager to know their funds are safe.
Stable coins are pegged to a U.S. currency. It is the dollar. There is a $1 bill in the bank if anyone wants to redeem a stable coin.
The New York Attorney General’s Office said that Tether’s claims that its virtual currency was fully backed by U.S. was false. When they issued reports in 2021, they showed a sizeable chunk of reserves in cash or “cash equivalents,” such as money market funds, as well as substantial holdings in secured loans.
While some of these investments helped Tether turn a profit, they could make the company less liquid in case of a “bank run”.
Circle is the second largest stable coin behind USDT in terms of market cap. As of July, only 61% of the holdings were backed by cash or cash equivalents.
By August, it had decided to use cash and short-term government bonds. Circle announced today that it would hold $50 billion in reserves in BNY Mellon, after Grant Thornton showed this to be the case.
Sen. Hagerty contends that while the Stablecoin Transparency Act is about consumer protection, the bill won’t put stablecoins in the hands of “unaccountable bureaucrats who threaten to choke off innovation.”
That is if it ever gets a vote. While there’s a bipartisan interest in getting the regulations right, the duo will likely need some support from across the aisle in order to get a committee vote.
Featured photo source unsplash.com
