U.S. Rep. Josh Gottheimer (D-NJ) introduced a discussion draft of a bill that seeks to define stablecoins and put protections in place for consumers and investors.
Overall, the Stablecoin Innovation and Protection Act of 2022 is designed to lower the risk of instability in the financial market, protect consumers, and support ongoing fintech innovation in the United States.
“The expansion of cryptocurrency offers tremendous potential value for our economy. But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers,” Gottheimer, a member of the House Financial Services Committee, said. “That’s why I’m releasing the Stablecoin Innovation and Protection Act to encourage cryptocurrency innovation in the United States, define qualified stablecoins, and protect Americans against bad actors like predatory entities and terrorists. We shouldn’t stifle innovation in the cryptocurrency market. We should ensure the proper safeguards are in place and ensure our nation is a leading force in financial technology.”
Specifically, the Stablecoin Innovation and Protection Act of 2022 would define qualified stablecoins as a cryptocurrency redeemable on demand on a one-to-one basis for U.S. dollars and issued by one of the two qualified issuers. A qualified stablecoin is defined as not a security or a derivative.
Further, it would require all qualified stablecoins to be issued by either a bank or a non-bank qualified stablecoin issuer. The non-bank issuer must maintain at least 100 percent reserve assets consisting of U.S. dollars, U.S. government-issued securities such as U.S. Treasuries, and other assets as deemed appropriate by the Office of the Comptroller of the Currency (OCC). Also, the cash collateral must be held in a segregated Federal Deposit Insurance Corporation (FDIC)-insured account.
In addition, it would provide the OCC with primary oversight authority over both types of stablecoin issuers and, in coordination with any other necessary agencies, be required to issue rulemakings for issues such as leverage ratios, auditing requirements, anti-money laundering/know-your-customer compliance, redemption requirements, liability management standards, and interoperability. Also, the FDIC would be directed to develop a Qualified Stablecoin Insurance Fund to manage the insurance of redemption payments of non-bank issuers.
Finally, the bill does not seek to restrict the issuance of other types of cryptocurrencies. The Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) are also not restricted from examining non-qualified stablecoins and other cryptocurrencies as potentially being securities and derivatives.
“Rep. Gottheimer’s bill represents the most comprehensive and well-thought-out stablecoin legislation we’ve seen to date,” Kristin Smith, executive director of the Blockchain Association, said. “We are pleased that Congress is taking a proactive approach by engaging with stakeholders in industry and government as they consider the best path for stablecoin regulation.”
It also has the support of other groups, including the Digital Chamber of Commerce.
“The Digital Chamber of Commerce appreciates Rep. Gottheimer’s proactive consultation with the industry and looks forward to continued engagement with Mr. Gottheimer, as well as with other Members, on working towards an appropriate regulatory framework that puts in place proper safeguards, preserves innovation, and enables a level playing field for both established stablecoin arrangements and new entrants within this evolving marketplace,” Teana Baker Taylor, chief policy officer at the Digital Chamber of Commerce, said.