Unleashing the Scene: Diving into The Senate's Stablecoin Brouhaha
Senate Advances Draft of Bill Regulating Stablecoins - Key Provisions Detailed
After a tumultuous week of political machinations, there seems to be a glimmer of hope for the fate of the controversial GENIUS Act - the Senate's proposal designed to regulate the booming stablecoin sector. A fresh draft of the bill, negotiated behind closed doors, has surfaced, sparking renewed enthusiasm among pro-crypto Democrats.
Decrypt managed to get hold of the bill's latest iteration, revealing a handful of changes, including updates on national security protections, ethics, Big Tech, and foreign issuers. However, whether these alterations will translate into enforceable regulations remains uncertain.
The bill's most contentious point revolves around the alleged crypto-related conflicts of interest held by former president Donald Trump. His family's crypto firm, World Liberty Financial, launched its stablecoin earlier this year and recently secured a massive $2 billion partnership with the UAE government. Democrats have vehemently opposed Trump issuing stablecoins while in office.
In the new bill, although the president and vice president remain exempt from a rule barring senior executive branch officials from issuing stablecoins, the language now explicitly forbids executive special government employees from offering such tokens.
Stablecoins are digital currencies, usually tethered to the U.S. dollar, that enable users to efficiently exchange digital assets without direct withdrawal of dollars. They are expected to revolutionize remittances and overseas payments and potentially draw billions - if not trillions - of dollars from traditional banking into the crypto realm once stablecoin legislation is enacted.
The new draft of the GENIUS Act addresses Big Tech's potential involvement in the stablecoin market for the first time, but it still might not be enough to quell criticisms. According to the bill, large public companies, that are not predominantly engaged in financial activities, can only issue a stablecoin if an independent Stablecoin Certification Review Committee deems it will not pose a substantial risk to the U.S. banking system. The companies are also forbidden from using stablecoin transaction data to target customers or selling such data to third parties, provided they obtain customers' consent in their terms of service.
A persistent worry about stablecoins is the possibility of them "de-pegging" from their dollar valuations and collapsing, potentially triggering chaos throughout the U.S. financial system. Despite the bill's new language on insolvency, it doesn't commit to any actions in the event of a collapsing stablecoin. Instead, the bill mandates stablecoin regulators to conduct a study, due to Congress within three years of the GENIUS Act's passage, examining the repercussions of a stablecoin insolvency, whether customers could be compensated, and whether adjustments to bankruptcy laws and insolvency administration rules would be necessary. The study does not necessitate action from Congress.
The bill's latest draft also attempts to address concerns over the use of stablecoins for illicit activities, such as money laundering and evading sanctions. However, critics argue that the new bill leaves too much discretion to the U.S. Treasury Secretary, Scott Bessent, to determine whether foreign nations have adequate regulations in place. The government of El Salvador, where Tether, one of the world's largest stablecoin companies, is headquartered, has close ties to the Trump administration, increasing apprehensions about the bill's effectiveness.
As the new draft circulates, it remains to be seen whether key Democrats will endorse the bill and push for a fresh floor vote. Crypto policy watchers have expressed relief, but a lingering hesitance. One industry leader mused, "This reads too good to be true."
Daily Deep Dive:
For in-depth articles and analysis on the GENIUS Act and other industry developments, subscribe to our Daily Debrief newsletter on Walrus.
- The controversial GENIUS Act, designed to regulate the stablecoin sector, has surfaced with a new draft, causing excitement among pro-crypto Democrats.
- The GENIUS Act's latest iteration contains updates on national security protections, ethics, Big Tech, and foreign issuers, yet the enforceability of these regulations is uncertain.
- The bill's most debated point is the alleged crypto-related conflicts of interest held by former president Donald Trump, whose family's crypto firm launched a stablecoin this year.
- In the new bill, executive special government employees are now forbidden from offering stablecoins, but the president and vice president remain exempt.
- The bill addresses Big Tech's involvement in the stablecoin market for the first time, but critics argue it may not be enough to quell all criticisms.
- The bill mandates a study on the repercussions of a stablecoin insolvency, leaving open the question of whether any adjustments to bankruptcy laws or insolvency administration rules would be necessary.
