The days of murky stablecoin reserves may be coming to an end.
On Thursday, two US lawmakers, Rep. Trey Hollingsworth (R-Indiana) and Sen. Bill Hagerty (R-Tenn.), proposed a new bill in both the House and Senate targeted at increasing transparency in the stablecoin market.
The “Stablecoin Transparency Act” would establish standards for the “quality of assets held in reserves” and require stablecoin issuers to report on their reserves.
If the bill is passed, it could have a big impact on stablecoin issuers like Circle and Tether, whose backing has sparked much discussion in the cryptocurrency industry.
Tether, by far the largest stablecoin issuer, has been especially tight-lipped about its reserves. The company has reneged on promises to conduct audits of its reserves and has fought tooth and nail to keep information from becoming public.
The now-$180 billion stablecoin market has also become a source of concern for regulators, with many expressing concern about potential exposure risks to the broader economy in the case of a “run” on stablecoin issuers.
Legislators are now attempting to find a solution that protects consumers and the economy while not stifling innovation. Hollingsworth sees his bill as a positive step forward.
“This bill isn’t going to solve everything,” Hollingsworth claimed. “But it is an incremental step towards the unveiling of a balanced approach between development, technology and protection of consumers.”
Hollingsworth said he was surprised by how many people were in favor of the new bill, both from other lawmakers and from people in the crypto industry.
“Even in its infancy of being introduced, we’ve just seen tremendous support on how this is a really thoughtful first step,” Hollingsworth said.
Who will benefit from the new bill? Hollingsworth believes that the bill, whether it passes or not, will provide stablecoin issuers with an early glimpse of how Congress intends to regulate stablecoins.
“Even presenting this and dropping this to Congress is a signal to industry where we are headed,” Hollingsworth said. “They can begin to make decisions and move in that same direction.”
It is important for Hollingsworth to make sure that the “good actors” in the stablecoin space – those who are interested in regulatory compliance– have the information they need to make decisions about investments, regulation, and how to advance the technology.
“Good actors in the space want to see the bad actors removed from the space, precluded from acting in the space, so that one bad actor will not besmirch the good reputation and good efforts of the entire industry,” he said.
Hollingsworth didn’t say which stablecoin issuer he thought was a “bad actor,” but other representatives, like crypto-friendly Rep. Warren Davidson (R-Ohio), have pointed the finger at Tether.
Impacts of the new bill
While the majority of stablecoins are pegged to the US dollar, Hollingsworth believed it was critical to develop a bill with a broader scope.
“We’re working as broadly as possible with industry and consumers globally to make sure we’re coming out with a thoughtful framework,” Hollingsworth said. “That’s one of the reasons, frankly, why the bill isn’t dollar-specific.”
“I don’t want to be behind the curve when this bill gets passed and then have to amend it to reflect the different currencies that people are issuing stablecoins in,” he added. Even if the bill is passed, the new requirements will not be implemented immediately.
“Agencies have to act upon the laws Congress passes,” Hollingsworth explained. “But I think the effect is immediate, because everyone knows this is going to be the law. So everyone starts to comply, even ahead of the enforcement.”
