Saturday, June 10, 2023

Dollar-backed Stablecoins Proposal


Rep. Trey Hollingsworth and Sen. Bill Hagerty introduced the Stablecoin Transparency Act.

Remember all the fuss about Tether being only sort of backed by the US dollar? Two lawmakers have introduced legislation to ensure that this never happens again. Rep. Trey Hollingsworth (R-IN) is in the House, while Sen. Bill Hagerty (R-TN) is in the Senate.

The Stablecoin Transparency Act

The Stablecoin Transparency Act would mandate that stablecoins be fully backed by a mix of US dollars and other currencies. Simultaneously, it should back by government securities having maturities of less than a year.

It would also make stablecoin issuers like Circle (USDC) and Tether (USDT) legally obligated to disclose audited reports confirming their reserves on a regular basis. Sen. Hagerty sympathized with consumers who want to know that their money is secure. He claims that there is a lot of ambiguity in the cryptocurrency business. It starts from whether coins are securities or commodities to who is in charge of regulating them.

Stablecoins are digital assets that are tied 1:1 to a fiat currency, most commonly the US dollar. The concept is that there is a $1 note in the bank for every stablecoin in circulation. Anyone who wishes to redeem that currency can do so.

Tether’s False Information

Tether, on the other hand, chastised by the New York Attorney General’s Office for promoting this false impression. Tether’s statements that its virtual currency was fully supported by US dollars at all times, they claimed, were false.

Instead, when Tether finally released disclosures in 2021, they revealed that a significant portion of its reserves held in cash or cash equivalents. Money market funds, as well as significant holdings in secured loans, bonds, or crypto assets, fall under this category.

While some of these assets helped Tether gain money, they could make it less liquid in the event of a digital bank run. Furthermore, if the price of Bitcoin or other crypto assets falls, the company’s reserves may lose value. It could fall below the USDT circulating value, causing the price to plummet.

Circle Criticized

In terms of market value, Circle, the business that partners with Coinbase on USDC, is the second-largest stablecoin after USDT. It chastised last year for having only 61 percent of its holdings backed by cash or cash equivalents as of July.

However, it said in August that it would solely employ cash and short-term government bonds. It would be similar to the Hagerty-Hollingsworth bill’s requirements. An attestation from accounting firm Grant Thornton in October of that year confirmed this. As a result, Circle stated today that it will deposit its roughly $50 billion in reserves with mega-bank BNY Mellon.

Consumer Protection

The Stablecoin Transparency Act, according to Sen. Hagerty, is about consumer protection. He claims, however, that the bill will prevent stablecoins from falling into the hands of unaccountable authorities. Those who are threatening to suffocate creativity.

That is, assuming it ever comes up for a vote. Democrats have a two-thirds majority in both chambers of Congress. However, getting bitcoin regulations right is a nonpartisan goal. To get a committee vote, the two will almost certainly need cross-party backing.

Vincent Sanchez
Vincent Sanchez
Vincent Sanchez currently writes articles for Cryptoconstellation. He completed his Msc in finance and had a successful career as an accountant. Vincent enjoys travelling and working out.

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