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US Regulators Propose Stablecoin Crack Down With STABLE Act

A new bill by US lawmakers has DeFi up in arms after proposing that all stablecoin issuers need to obtain a bank charter, which would potentially make much of DeFi trading and even running an Ethereum node, illegal. 

“It shall be unlawful for any person to issue a stablecoin or stablecoin-related product, to provide any stablecoin-related service, or otherwise engage in any stablecoin-related commer-cial activity, including activity involving stablecoins issued by other persons, without obtaining written approval in advance, and on an ongoing basis, from the appropriate Federal banking agency, the Corporation, and the Board of Governors of the Federal Reserve System,” the document says.

The wording of the  Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act, is open enough to include everyone from issuers —even if the issuer is a smart contract like with Dai— to exchanges, and even those running the open source Ethereum software, as it will inevitably process transactions that include stablecoin trades.

Gray Area

The bill highlights the risk of operating in an industry that’s developing in a regulatory gray area, with officials who don’t always understand the very technologies they are trying to regulate.

The bill claims to protect low and moderate-income (LMI) consumers from “shadow money issuers.” Meanwhile, crypto advocates argue that it’s precisely those consumers that stablecoins help the most.

“Stablecoins, by their nature, can only INCREASE access to financial services. Unlike the existing system, they do not require the use of a bank account,” blockchain consultant Reuben Bramanathan said in a tweet.

Stablecoin Education

Coin Center, a non-profit advocating for fair crypto regulation, is rallying to educate policy markers on stablecoins. The group argued in a post that dollar-denominated liabilities held by stablecoin-issuing money transmitters may carry less risk than when they are held by traditional money transmitters, “because public blockchains create verifiable accounting tools for auditing the supply of instruments in circulation.”

“So why does this bill target stablecoins but not traditional money transmitters? Perhaps because it is easier to pick on a young innovative industry with fewer political allies than an older sector with deeper pockets,” said Coin Center, whose Gitcoin grant of $56k in contributions, is proof of the overall community support.  

The STABLE Act highlights an important topic of regulation for web3, an area which has historically been slow and outdated to take form. While the STABLE Act has its obvious flaws, it also shows that conversations around the regulation of stablecoin regulation now also s go to mentions companies like Facebook and Paypal, an a clear indicator that web3 is here to stay, and subject to a much larger market than what we’ve experienced with DeFi today.