"Explanation of Several Situations Regarding the Highly Anticipated, 'Historic Moment' GENIUS Act"
*What is this for:
To create an overall framework and clear "federal regulatory framework" for stablecoin issuers operating within the United States, their products, or the circulation and trading of their stablecoins within the US.
"Payment Stablecoin" Part One
- The act defines "payment stablecoins" and explicitly excludes these stablecoins from securities or commodity classifications (now issuers can be at ease, remembering the past experiences of stablecoin issuers being accused of "issuing securities" and exchanges being viewed as providing "securities trading"...).
Who Can Issue? Part One
Key point: Future compliant stablecoin issuance will be license-based
- Only entities registered and licensed in the United States can legally issue payment stablecoins.
- These entities can be subsidiaries of insured deposit institutions (IDI), federally qualified non-bank payment stablecoin issuers approved and regulated by the OCC, or state-qualified issuers established under state law and approved by state payment stablecoin regulatory bodies
Who Can Issue? Part Two
- Requires issuer regulation similar to banks, regardless of whether they are banks themselves
- Therefore, those not approved as deposit institutions must be "approved".
- Of course, the act also provides a 3-year grace period for US digital asset service providers (such as exchanges and trading companies); after this period, it will be prohibited to provide or sell stablecoins issued by non-licensed issuers.
Bottom Line: No Fictitious Reserves!
Key point: Mandatory 1:1 reserve assets
- Moreover, there are requirements for reserve assets: Qualifying reserve assets include US currency, insured deposits, short-term US Treasury bills, qualified repurchase agreements, and potentially central bank reserves. The inclusion of repurchase agreements in reserve assets has been questioned.
Mandatory 1:1 Reserve Assets, Part Two
- Prohibits re-pledging of reserves.
- Reserves must be segregated from operating funds (you can't use reserve funds to invest or seek high-yield opportunities arbitrarily! Many stablecoins in the market, are you listening?)
Prohibition of Interest-Bearing Stablecoins:
Key point: Prohibits licensed issuers from providing yields or interest on their issued stablecoins.
- Look carefully: Issuers are prohibited from providing yields! Third-party platforms can.
- Can affiliated companies of the issuer provide yields (unclear)?
- This is mainly to prevent stablecoins from directly competing with bank deposit yields and aligns with the concept of stablecoins being primarily for payment, not investment.
What Happens if the Issuer Goes Bankrupt?
- Stablecoin holders have priority claim rights to reserve assets when the issuer goes bankrupt.
- Mandatory timely redemption and public disclosure of redemption policies.
"Transparency Mandatory Requirements" Part One
- Monthly public disclosure of reserve composition, certified by CEO/CFO.
- Registered accounting firms must review the publicly disclosed reserves monthly (using the term "examined" rather than the more rigorous "audited").
"Transparency Mandatory Requirements" Part Two
- Issuers with total stablecoin issuance exceeding $50 billion and not SEC reporting companies must undergo annual financial statement audits.
(Democratic lawmakers have reservations: This will result in the vast majority of issuers not requiring independent financial audits due to insufficient issuance volume)
Anti-Money Laundering
- Issuers must implement AML/CIP/sanctions compliance plans
- Issuers must demonstrate technical capability to comply with US legal orders to freeze, destroy, or block tokens.
- US intelligence and law enforcement actions are not significantly constrained. The Treasury can exempt secondary market trading restrictions for national security needs.
- Despite the act's requirements for expanded AML plans, opponents continue to challenge the act for insufficient anti-money laundering measures.
"Handling Foreign Issuers" Part One
- The act aims to bring foreign-issued stablecoins under regulatory scope
- Foreign issuers must come from jurisdictions with comparable systems and register with the Office of the Comptroller of the Currency (OCC)
"Handling Foreign Issuers" Part Two
- Must comply with US legal orders and maintain sufficient reserves in US financial institutions to meet liquidity needs of US customers
- This is also the most controversial aspect. Opponents argue that these regulations are not strict enough, will put US issuers at a disadvantage, and encourage offshore registration.
- It's mainly targeting Tether. Wonder what US Deputy-level official Rotnitzky thinks?
"Payment Stablecoin" Part Two
- Payment stablecoins are defined as digital assets used for payment or settlement, with value pegged to legal tender and fully backed 1:1 by US dollars, short-term Treasury bills, or similar high-quality liquid assets. (USDT, with significant BTC-backed assets, likely does not meet this definition; algorithmic stablecoins? Don't even try to join in.)
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