The United States turns its attention to stablecoin regulation

The United States continues to lead the world in adopting the cryptocurrency industry thanks to the work of Senator Patrick Toomey, with the White House at the forefront of crypto regulation. Last year, President Joe Biden signed a bipartisan $1.2 trillion infrastructure bill — and it included some new legislation that would impact the crypto sector. And recently, the US President announced a “state-of-government” approach to cryptocurrency regulation in a general executive order directing multiple government agencies to answer specific questions about cryptocurrencies. The US has clearly attempted to make the crypto industry more sustainable over the past year, which will make cryptocurrency platforms much easier to operate.

But the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022, known as the Stablecoin TRUST Act for short, makes the US likely the only country, or at least the only Western country, to fully regulate stablecoins and accept them as an official part of the financial and banking system.

Introduced by Senator Toomey, the senior member of the Senate Banking Committee, the Stablecoin TRUST Act forces stablecoin issuers to adhere to certain rules. The provisions of the law are far-reaching and comprehensive. The bill clarifies that payments stablecoins are not securities, which is a great thing for the industry. The bill also refers to stablecoins as “payment stablecoins” — digital assets that are “directly convertible into fiat currency by the issuer” and that have “stable value relative to one or more fiat currencies.”

Related: The regulations set the table for more talent, capital and growth in the crypto industry

Stablecoin issuers would have to choose between an Office of the Comptroller of the Currency (OCC) license, a state money transmitter license or similar license, or a traditional banking charter. Stablecoin issuers operating in the US would be subject to a disclosure regime that would require them to ensure regular audits, set clear redemption policies, and disclose what actually supports the stablecoins they issue.

Need a US CBDC?

With the discussion draft of the bill circulating in Congress and receiving feedback, my question is: if the law becomes law, would the US government still need to create a central bank digital currency (CBDC), or what some call the digital dollar, to develop?


There doesn’t seem to be a need for the US to develop a digital dollar if private stablecoin issuers are accepted as part of the broader financial system. Would it be necessary for the government to have both private and public digital dollars, one from providers and one from the federal government? These questions will arise in the coming months as US regulators continue to address them.

But it is clear that part of Biden’s executive order includes “placing urgency on research and development of a potential U.S. CBDC if issuance is deemed to be in the national interest,” according to an accompanying fact sheet released by the White House became.

Related: Fitting the bill: The US Congress is considering e-cash as an alternative to CBDC

It would be the first time in history that a nation would allow both private stablecoin issuers and government-issued stablecoin to operate in a single market. Some countries have banned private stablecoins because they want to promote their own CBDC, but the US is taking a different tack that could drive significant innovation in the stablecoin industry — and, of course, make it more transparent and sustainable. But there are problems, with potentially serious consequences.

Interest rates will be capped – expect a consolidation

The Stablecoin TRUST Act regulates what assets can support their USD-pegged stablecoins, which would be cash, where interest rates are incredibly low, and Treasury Bills (T-Bills), where interest rates aren’t much better. This poses a major problem for both current stablecoin issuers and future players, as they cannot earn higher interest rates on riskier assets.

Currently, certain stablecoin issuers back most of their tokens through higher-paying trading instruments that cannot be evaluated without more transparency and scrutiny. According to USDT stablecoin issuer Tether as of March 31, 2021, over 65% of their reserves were backed by commercial paper, only about 4% were backed by cash, and about 3% are backed by T-bills. As such, Tether and other stablecoin providers will need to completely change the composition of their reserves to bring them in line with the Stablecoin TRUST Act when it becomes law.


Competition in the stablecoin industry may slow down and we may see some consolidation. Since stablecoin issuers will not be able to use higher-paying assets to generate high interest rates, they will find it difficult to generate profits while managing compliance risks, personnel taxes, and general administration costs.

Related: Regulators are coming for stablecoins, but where should they start?

The big players will most likely find a way to make it work, but smaller stablecoin issuers will find it difficult to turn a profit when the law goes into effect.

Let’s pass the Stablecoin Trust Act

While the stablecoin TRUST Act may create some barriers for new entrants into the industry, I believe it will make the industry more transparent and sustainable. By enforcing disclosure and redemption obligations for the USD stablecoins, they will become significantly more secure and transparent in the future.

One of the best parts of the Stablecoin TRUST Act is that it really brings stablecoins into the traditional US financial system. OCC-licensed issuers will have access to the Federal Reserve’s master account system, which would give them the ability to tap into the broader financial system and greater amounts of liquidity in transactions.

It will be some time before the Stablecoin TRUST Act becomes law, but if it stays true to its current form, the US will continue to set the gold standard in cryptocurrency regulation. So let’s work together to make sure the law becomes law.

This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Raymond Hsu is co-founder and CEO of Cabital, a cryptocurrency wealth management platform. Prior to co-founding Cabital in 2020, Raymond worked for fintech and traditional banking institutions including Citibank, Standard Chartered, eBay and Airwallex.