The bipartisan majority in the Senate just passed Genius Law Provides a regulatory framework for stablecoins. Similar bills, Stabilize behavior, Traveling through the house. President Trump hopes to sign a bill this year, so it seems we are on the way to a continuously overdue regulatory regime.
Or us? We shouldn’t count chickens before they hatch. The proposed legislation is flawed and can and should be fixed in time to eliminate unnecessary duplication, which will impose excess costs on the industry and taxpayers.
Fortunately, legislation is easily determined. The House and Senate bills, while roughly similar, have some differences, and the two rooms will have to reach an agreement. Will the resulting bill be called the Stability Genius Act? There is still time to avoid problems, such as choosing 55 different regulators, or putting a stabilizer for operating interest outside the regulatory framework.
Problems in our outdated regulatory framework have led to regrets in hundreds of different financial regulators at the U.S. and federal levels. Regulators engage in turf fights to expand their territory, while other important issues fall into neglected cracks. FTX is regulated by the national currency transmitter regulator for all. Whose good idea is that?
This split in our regulatory system is one of the factors that led to the 2008 financial crisis. Dodd-Frank legislation It is to add another layer of bureaucracy, namely the Financial Stability Supervision Commission (FSOC). The idea behind the FSOC is that the duke and earl who oversee the territory will be brought together in the committee and more than before. Congress is about to repeat the error by passing a joint rule requiring alphabet soup agencies.
This Byzantine bureaucracy slows down the reasonable way of digital assets. One example is whether a specific digital asset is security under the infamous Howey test, and is therefore affected by the whimsicality of the SEC or something, and therefore differently demanded by other regulators (CFTC? CFPB? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cfpb? cofterter transmitter pantmitter regulator?).
We are all familiar with the distortions of digital asset issuers to avoid Kafka-style SEC experience. Even tradfi’s securities issuers do their best to take advantage of many exceptions in order to conduct SEC registration as much as possible. SEC oversight is an overpriced and tedious process, especially for new and small companies. Over the years, the SEC has not been successful in scaling the scope of new and smaller businesses in appropriately scaling the registration requirements.
The proposed bill will allow issuers to choose from 55 different regulators and establish the right jurisdiction through the right charter. In addition to federal level alphabet soups (FDIC, OCC, FED, NCUA, and Security-stablecoins, SEC), Stablecoin issuers also have the option of state regulators. What could be wrong with choosing 55 different regulators? Many things.
First, there is a danger of a game. Stablecoin issuers will easily choose the regulator that uses Laxest and has the lowest cost supervision. This increases the chance that regulators will miss something important. To address this, the bill requires the Treasury Secretary to prove that the state’s regulations are “substantially similar” to federal regulations. If it is “substantially similar”, why bother with this redundancy? Furthermore, the Finance Minister must go through a formal rulemaking process to propose the principle of establishing substantial similarity. Talk about repeated waste of resources!
But wait, like on a good information TV, there are more! That is, more waste and redundancy. The House bill requires joint rulemaking to negotiate with state regulators on stable capital requirements. Any veteran of joint rulemaking can demonstrate the long and painful process of joint rulemaking by different federal agencies working together.
The process of joint rulemaking is very slow, because reaching an agreement between institutions is a long, slow and often controversial process. Such joint rulemaking survivors are related to events related to me, in which yelling among employees at different agencies almost led to fist fights. Congress can set deadlines for rules, but there is usually no penalty if the agency has a deadline many years later.
Speaking of turf wars, stablecoins that do not cover payment interest. Who manages these? The bill also does not cover “security”. Such coins are probably adjusted by the SEC. We can expect regulators and courts to keep arguing about future Stablecoin-like products that are regulated by one of 55 stable regulators, SEC or CFTC, CFPB or others.
At the time when the Governor’s Government constructed a regulatory system in its enormous attempt to eliminate waste and redundancy, in which overlapping regulators’ positions and duels in joint rulemaking are ridiculous contradictions. Congress needs to choose a regulator and get rid of joint rulemaking and national loopholes.
Of course, before we talk about who and how to regulate the stabilizer, we need to be clear about why we need to regulate the stabilizer. This will help to find out the best way to regulate the stabilizer. Generally, financial regulations have some common sense goals:
- When something bad happens, the economy won’t die.
- When the agency fails, the client is protected.
- The economy can grow and stabilize.
- Market participants have the information they need to make good decisions.
- Fraudsters do not sell fake instruments.
- Intermediaries holding client assets can be trusted.
- The price is fair, no manipulation.
Stablecoins is an important innovation in the global payment system. They help consolidate the role of the dollar in the global economy. They may grow significantly from their current scale and become important in the system. Failure of very large stable proteins can be plagued by spreading throughout the economy.
Those who lose money in such failures may in turn default on the contract, threatening to lower other entities without a stable equity directly held. Running on stablecoins will cause it to abandon its holdings in U.S. Treasury bonds, causing trouble in the treasury market. This is a microcosm of systemic risks, which need to be In fact Systemic risk regulator, Federal Reserve.
Congress can and should address the flaws in the Stabilizing Genius Act. Congress should use the Fed as a single regulator of stabilizing bacteria. There should be a stable stabilizer with stable interest rates entering a stable regulatory system. These fixes can be made simple on existing text. Congress should also begin to seriously consider how to resolve our dysfunctional regulatory structures in the future.
Smarter and more agile regulatory structures will quickly grasp the many benefits of blockchain technology and propose appropriate ways to safely promote innovation and ensure U.S. leadership. We need to start discussing how to do this best. Financial technology will continue to evolve and our outdated regulatory structure will hinder this innovation unless we resolve it as soon as possible.
