The Federal Reserve Moves To Establish Control Over Crypto’s Wild West
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The promise of cryptocurrency’s decentralization has inevitably led to conflicts with centralized institutions. The most recent development in this ongoing battle emerges in the guise of the Lummis-Gillibrand Payment Stablecoin Act.
This proposed law comes in the mix of cryptocurrency volatility. It aims to control stablecoins so it doesn’t become the next financial hazard. It’s like a plan for managing a technology that came from not trusting the government to watch over it.
The Proposed Lummis-Gillibrand Act Is Set To Regulate Stablecoins Effectively
This is quite ironic given its prominent role in a world currently grappling with the outcome of insufficiently regulated banking systems.
Stablecoins are digital currencies that are tied to real-world assets. It offers the reliability of traditional fiat currency while also being fast and efficient like cryptocurrency. However, it can also be risky when not properly regulated. For example, for individuals holding USDC when Silicon Valley Bank collapsed, the stablecoin’s value could have been affected.
The Lummis-Gillibrand Act strongly opposes algorithmic stablecoins, completely banning them, while also establishing a framework for stablecoin issuers that promise greater safety and stability. The bill aims to balance the act, granting the Federal Reserve authority over all stablecoins while also acknowledging the importance of state regulators.
The Bill Aims To Establish Stablecoin Issuers’ Authorization Process
The bill also divides stablecoins into two groups based on their asset size, those with less than $10 billion and those with more. This initiative enables innovation to thrive at the local phase while guaranteeing that the Federal Reserve oversees the overall situation.
For larger issuers such as Circle, there’s a stricter process in place. To become a national stablecoin issuer, they require approval from the Federal Reserve and must function as a depository institution.
This novel process shows how the U.S. government perceives stablecoins, not just as digital tokens, but as potential pillars of a future financial system.
However, the requirements outlined in the bill are not merely common obstacles. The proposed reserve structure seeks to stop the recurrence of recent banking crises. Stablecoins are mandated to maintain short-term Treasury bills, bank deposits, reserves in cash, and other safe assets.
The provision regarding bank deposits of capping balances at the insurance threshold of $250,000 reflects a response to the collapse of Silicon Valley Bank. It also emphasizes the importance of prudence and diversification.
