This recently proposed bill before the US House of Representatives is absolutely insane in that it is attempting to ban all stable valued tokens except those issued by US Federal Banks. Apparently, if you want a stable US LEGAL digital store of value, you can ONLY get it from a US bank.
A CoinCenter article claimed “This bill seems to leave most non-bank dollar-denominated liabilities out; it apparently does not cover any liabilities held by PayPal, Venmo, Square Cash, Apple Pay, Google Pay" and that “The bill, instead, targets dollar-denominated liabilities for special regulatory treatment if and only if they are so-defined “stablecoins.” -- but this is pretty clearly incorrect.
The definitions in the bill read exactly that (page 8, line 17) “The term ‘stablecoin’ means any cryptocurrency or other privately-issued digital financial instrument” that (page 9, line 25) “can readily be converted into United States dollars, or any other national or state currency, or a functional monetary equivalent, on demand.”
You shouldn’t need a lawyer to understand exactly how far this law actually reaches . . . . (although the article does later equivocate “Or maybe the bill is intended after all to indeed cover the likes of PayPal and Western Union because the definition of “stablecoin” in the bill is intended to be interpreted broadly. If that’s the case then this is a cleverly marketed trap; a trojan horse that the likes of Apple and Square might want to eye with suspicion.”)
CoinCenter is dead-on, however, when they describe the effect on Ethereum.
One prong of the SEC's Howey test rests upon the expectation of an increase of value. One easy way to comply with SEC regulations is therefore to ensure that a coin CANNOT increase in value. As a result, banning stable coins means that utility tokens must either
One very good result of this idiocy is that it should reduce the uncertainty in how cryptocurrency will eventually be regulated and thereby bring it closer to the mainstream use that we all desire -- but the roller coaster ride continues . . . .
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A CoinCenter article claimed “This bill seems to leave most non-bank dollar-denominated liabilities out; it apparently does not cover any liabilities held by PayPal, Venmo, Square Cash, Apple Pay, Google Pay" and that “The bill, instead, targets dollar-denominated liabilities for special regulatory treatment if and only if they are so-defined “stablecoins.” -- but this is pretty clearly incorrect.
The definitions in the bill read exactly that (page 8, line 17) “The term ‘stablecoin’ means any cryptocurrency or other privately-issued digital financial instrument” that (page 9, line 25) “can readily be converted into United States dollars, or any other national or state currency, or a functional monetary equivalent, on demand.”
You shouldn’t need a lawyer to understand exactly how far this law actually reaches . . . . (although the article does later equivocate “Or maybe the bill is intended after all to indeed cover the likes of PayPal and Western Union because the definition of “stablecoin” in the bill is intended to be interpreted broadly. If that’s the case then this is a cleverly marketed trap; a trojan horse that the likes of Apple and Square might want to eye with suspicion.”)
CoinCenter is dead-on, however, when they describe the effect on Ethereum.
The logical consequence of the bill is that if any person is running software that validates Dai or other stablecoin smart contracts they will, themselves, be violating the law unless they are a chartered bank. Wisely, the bill does not appear to criminalize authoring or distributing that smart contract code because that would almost certainly face strict constitutional scrutiny on First Amendment grounds . . .
Instead, it makes it illegal to run that software. To be clear, that software is the Ethereum network client. An Ethereum node does not discriminate between the various otherwise validly constructed smart contracts, it simply checks the math. If your software can’t discriminate between “legal” and “illegal” smart contracts, the bill’s sponsors might argue, then your choice to run that software is, itself, illegal. By targeting stablecoins this bill would have the effect of also destroying the larger Ethereum network and any other smart-contract-enabled public blockchain as necessary collateral damage.Watching the debate over this proposed law (or, rather, modification of existing law) should be tremendously enlightening. I don't see any way in which it can pass in its current form -- but what is particularly interesting to me is the follow-on effects that this will have on the regulation of utility tokens and/or attempts to transmit value across blockchains.
One prong of the SEC's Howey test rests upon the expectation of an increase of value. One easy way to comply with SEC regulations is therefore to ensure that a coin CANNOT increase in value. As a result, banning stable coins means that utility tokens must either
- be engineered to only decrease in value unpredictably or
- be redeemed ONLY for strictly specified services (i.e. no cashing them back out and you certainly cannot have an economy based upon them)
One very good result of this idiocy is that it should reduce the uncertainty in how cryptocurrency will eventually be regulated and thereby bring it closer to the mainstream use that we all desire -- but the roller coaster ride continues . . . .
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