White House

U.S. Congress to introduce new draft bill for stablecoins

Failure to register as a stablecoin issuer could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to operate in the country.

A new draft bill providing a framework for stablecoins in the United States was published on the House of Representatives’ document repository, a few days before a hearing on the topic on April 19. The draft puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, respectively issuers of Tether (USDT) and USD Coin (USDC).

Stablecoins are a class of cryptocurrencies that attempt to offer investors price stability by being backed by specific assets or using algorithms to adjust their supply based on demand. Stablecoins were introduced in 2014 with the release of the BitUSD.

According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate Federal banking agency supervision, while non-bank institutions would be subject to the Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to do business in the country.

Among the factors for approval are the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with maturity of 90 days or less, repurchase agreements with maturity of 7 days or less backed by Treasury bills with maturity of 90 days or less, as well as central bank reserve deposits.

Additionally, issuers must demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.

On a Twitter thread, Circle’s CEO Jeremy Allaire said that “there is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.” Cointelegraph reached out to Tether, but did not receive an immediate response.

Also, as part of the drafted legislation is a two-year ban on issuing, creating or originating stablecoins not backed by real assets. It also establishes that the Treasury Department would conduct a study regarding “endogenously collateralized stablecoins.”

As per the document definition, endogenously stablecoins “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”

The draft further allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that the Congress and the White House would support a Federal Reserve’s study about the issuance of a digital dollar.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

US Congress to introduce new draft bill for stablecoins

Failure to register as a stablecoin issuer could result in up to five years in prison and a fine of $1 million.

A new draft bill providing a framework for stablecoins in the United States was published in the House of Representatives document repository a few days before a scheduled hearing on the topic on April 19. The draft puts the Federal Reserve in charge of non-bank stablecoin issuers, such as crypto firms Tether and Circle, respectively, issuers of Tether (USDT) and USD Coin (USDC).

According to the document, insured depository institutions seeking to issue stablecoins would fall under the appropriate federal banking agency supervision, while non-bank institutions would be subject to Federal Reserve oversight. Failure to register could result in up to five years in prison and a fine of $1 million. Issuers out of the United States would have to seek registration to do business in the country.

*Draft of the bill, including stablecoin regulations. Source: docs.house.gov*

Among the factors for approval is the ability of the applicant to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits.

Additionally, issuers must demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.

On a Twitter thread, Circle’s CEO Jeremy Allaire said that “there is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.“ Cointelegraph reached out to Tether but did not receive an immediate response.

Also, as part of the drafted legislation is a two-year ban on issuing, creating or originating stablecoins not backed by tangible assets. It also establishes that the U.S. Department of the Treasury would conduct a study regarding “endogenously collateralized stablecoins.“

*Part of the draft bill outlining a moratorium on creating new stablecoins. Source: docs.house.gov*

As per the document definition, an endogenous stablecoin “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.“

The draft further allows the U.S. government to establish standards for interoperability between stablecoins. It also determines that Congress and the White House would support a Federal Reserve study about issuing a digital dollar.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom

US President Joe Biden urges tech firms to address risks of AI

President Biden urges technology companies to prioritize secure AI products before public release, stressing the need to address potential risks to society, national security and the economy.

United States President Joe Biden stated on Tuesday that the safety of artificial intelligence (AI) is still uncertain, and emphasized that technology firms should ensure their products are secure before releasing them to the public.

During a meeting with science and technology advisers, Biden acknowledged that AI could be beneficial in tackling issues such as disease and climate change. However, he stressed the significance of addressing possible risks to society, national security and the economy.

At the beginning of a meeting with the President’s Council of Advisors on Science and Technology, he stated that technology companies must ensure their products are secure before releasing them to the public. When questioned about the potential hazards of AI, he replied, “It is yet to be determined. There is a possibility.“

According to the president, social media has already demonstrated the negative impact that powerful technologies can have in the absence of appropriate measures to protect against them. “Absent safeguards, we see the impact on the mental health and self-images and feelings and hopelessness, especially among young people,” Biden said.

He repeated his call for the U.S. Congress to approve non-partisan privacy laws that limit the personal data gathered by technology firms, prohibit child-targeted advertising, and gives priority to health and safety in product development.

The Center for Artificial Intelligence and Digital Policy, a technology ethics organization, recently urged the U.S. Federal Trade Commission to prevent OpenAI from releasing new commercial versions of GPT-4, a language model that has both impressed and alarmed users due to its human-like capacity to create written responses to prompts.

Magazine: All rise for the robot judge: AI and blockchain could transform the courtroom

White House report takes aim at Bybit — and forgot about Deribit

The White House isn’t doing any favors for derivatives traders by turning a blind eye to the biggest players in the space.

The White House released its annual economic report on March 20, and it dedicated an entire section to digital assets.

The authors should be commended for doing so. I largely agree with the report’s assessment that certain aspects of the digital asset ecosystem are causing problems for consumers, financial systems and the environment.

However, as a builder in the digital asset space, I cannot disagree more with its conclusion that “crypto assets currently do not offer widespread economic benefits.”

To understand how the White House plans to regulate digital assets, it’s important to examine what was left out of the White House report. A particularly out-of-touch piece of data that made the report was a list titled, “Top Ten Crypto Derivative Platforms by Open Interest.” It included offshore exchanges including BingX, Deepcoin and BTCC Futures.

While most digital asset proponents would agree with the report that these exchanges are not reputable by any means, and open interest is a metric that is trivially easy to manipulate, it’s neither here nor there. The real issue is why the White House report chose to focus on offshore exchanges that have no checks and balances and aren’t even open to United States-based users.

What’s more revealing is the fact that they choose to completely ignore the largest derivatives product that is available to U.S.-based users, one that has been vetted and received approval from the Commodities Futures Trading Commission to launch in a safe and regulated manner: the Bitcoin (BTC) and Ether (ETH) futures offered by the Chicago Mercantile Exchange (CME).

The CME is an entity that is fully compliant with all U.S. laws and regulations and, with the recent launch of the Micro Bitcoin and Micro Ether futures, has made it possible for retail investors to access a safe, regulated and U.S.-based futures derivative product.

Why would they choose to omit the mention of the CME?

Could it be because the CME can only list commodities, putting into question the Securities and Exchange Commission’s position that ETH is a security?

Furthermore, none of the platforms mentioned by the White House have any name recognition among crypto-native investors. While this could be attributed to the fact that there are relatively few derivative exchanges on the market and that none of these exchanges seem to have filled the void left by FTX, another omission is very telling.

The White House report also fails to mention Deribit, the largest options exchange by volume and open interest. Based in the Netherlands but unavailable to U.S. users, the company is focused on education and outreach and is far more transparent than most on the market. So, why was it not included?

The White House is purposefully excluding any legitimate businesses from the list of derivative platforms, a position that is likely taken in order to paint digital assets as shadowy, unsafe assets.

Derivatives, such as futures and options, are a core component of any financial system. The U.S. — and White House — would benefit from a thriving digital asset economy that includes derivatives and options markets. And I do agree that the exchanges listed in the White House report are indeed quite risky.

But what the White House is missing is that there is a better alternative, one that cannot be swept under the rug anymore and one that is transparent, noncustodial, cryptographically secure and fully open-source: decentralized finance (DeFi).

DeFi is fully noncustodial and has no intermediaries, so there are no “entities” to regulate because users are always in control of their funds. In addition, most DeFi uses collateral requirements and limits access to leverage: All lending protocols are overcollateralized, and the balance is instantly auditable, as opposed to fractional reserve banking.

The lack of regulatory clarity from the U.S. SEC and CFTC stifles innovation in the derivatives space.

Most DeFi protocols can and should plan to follow the guidelines of self-regulatory organizations such as the Financial Industry Regulatory Authority to protect all users. Clearly stated regulations have a place in any industry, but regulation by enforcement stifles innovation. I’m seeing this firsthand as a builder in the digital asset space, and the lack of clarity is making it impossible for any U.S.-based entity to even tap into the U.S. market.

Digital asset proponents know about previous financial crises. Most of us lived through the hellscape that unfolded post-2008 due to bank deregulation. Our goal is to rebuild the financial infrastructure from the ground up, in the most transparent and securest way possible. DeFi is backed by mathematically unbreakable encryption, and centralized exchanges based offshore are the shadow banks of this generation.

Builders in the DeFi space want to create the most secure financial system in history. We want to empower citizens of the world, not private banks or runaway financiers.

And despite what U.S. regulators may think, we are willing to work with governments, central banks and regulators. We just need to know you’re arguing in good faith.

Guillaume Lambert is the founder and CEO of Panoptic and an assistant professor in applied physics at Cornell University. His research at Cornell focuses on biophysics. He holds a Ph.D. in physics from Princeton University.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

‘Crypto FUD’ — Industry outraged as White House report slams crypto

The report included 35 pages seemingly aimed at debunking the merits of crypto assets.

Crypto executives have expressed irritation over the latest White House economic report — which notably features an entire chapter dedicated to casting doubts on the merit of digital assets.

The Economic Report of the President, released on March 20, marks the first time the White House has included a section on digital assets since it first began issuing the annual economic policy report in 1950.

The co-founder of digital asset investment firm Paradigm, Fred Ehrsam, remarked that 15% of the Economic Report was dedicated to “crypto FUD.”

15% of the annual White House Economic Report is devoted to crypto FUDhttps://t.co/lQlAyXgfyJ pic.twitter.com/RTZacgXSUg

— Fred Ehrsam (@FEhrsam) March 21, 2023

The report includes 35 pages dedicated to debunking the “Perceived Appeal of Crypto Assets,” along with a short section on the FedNow payment system and central bank digital currencies.

The report’s main argument is that crypto assets fail to deliver on their “touted” benefits, such as improving payment systems, financial inclusion and creating mechanisms to transfer value and intellectual property, stating:

“Instead, their innovation has been mostly about creating artificial scarcity in order to support crypto assets’ prices — and many of them have no fundamental value.”

It also argues that cryptocurrencies fail to perform the functions of sovereign money — such as the U.S. dollar — as crypto prices fluctuate too wildly to be a stable store of value, nor can they function as a unit of account or medium of exchange.

*Excerpt from Chapter 8: Digital Assets: Relearning Economic Principles Source: Economic Report of the President*

The report also takes aim at stablecoins, arguing they are subject to run risks and thus too risky to satisfy their role as a “fast payment” instrument.

Blockchain Association CEO Kristin Smith called the latest presidential report “disappointing,” saying it shows that some in the government appear “increasingly allergic” to the burgeoning crypto industry, adding:

“We urge the Biden administration to consider how it will be remembered: as a leader of profound innovation or a roadblock to a global tech revolution.”

Decentralization is also highlighted in the report, which argues that “despite claims of being decentralized and trustless, blockchain-based applications are in practice neither.”

Users access crypto assets by going to a limited set of crypto asset platforms, while a small group of miners performs the majority of mining in most crypto assets, it argues.

The latest annual economic policy report was published some two weeks after the collapses of Silvergate, Silicon Valley and Signature banks — all three of which had served aspects of the crypto industry.

Dan Reecer, chief growth officer at decentralized finance platform Acala Network, claims that the report comes “just days” after Operation Chokepoint 2.0 was executed on crypto-friendly banks.

He also noted an “obvious early warning” of an upcoming United States CBDC, or digital dollar, referencing a section of the report that seemingly touts the benefits of a U.S. central bank-controlled currency.

White House ‘aware of the situation’ at Silvergate, says spokeswoman

The spokeswoman said that she wouldn’t be commenting specifically on Silvergate, but the White House will be actively monitoring the situation with the crypto bank.

The Biden Administration is “aware of the situation” at Silvergate and will continue to monitor reports on the troubled bank as it unfolds, according to a White House spokesperson.

Speaking at a press briefing on March 6, Press Secretary Karine Jean-Pierre said the White House hasnoted that Silvergate marked another major crypto firm to “experience significant issues” in recent months but declined to go into further specifics on the firm.

“In recent weeks, banking regulators have released guidelines on how banks should protect themselves from risks associated with crypto,” she said, adding that:

“This is a president that has repeatedly called on Congress to take action to protect everyday Americans from the risk posed by digital assets and he will continue to do so. We won’t speak to this particular company as we have not with other cryptocurrency companies, but we will continue to monitor the reports.”

Silvergate, known as a “crypto bank,” was a key banking partner to a number of major crypto companies and projects.

However, uncertainty over the bank’s solvency began to spread at the start of March, after Silvergate delayed the filing of its annual 10-K report by two weeks. A 10-K report is a legally required document that provides a comprehensive overview of a company’s business and financial condition.

On the back of that news, Coinbase announced on March 2 that it had terminated its partnership with Silvergate, as the crypto exchange also alluded to concerns over the Department of Justice’s investigation into the firm over involvement in the collapse of FTX.

At Coinbase all client funds continue to be safe, accessible & available.

In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.

— Coinbase (@coinbase) March 2, 2023

Several crypto heavyweights promptly followed suit by either cutting ties or distancing themselves from the bank, including Circle, Paxos, Bitstamp, Galaxy, MicroStrategy and Tether to name a few.

On March 4, Silvergate also announced that it was shutting down its digital asset payment network Silvergate Exchange Network due to “risk-based” concerns, sparking further uncertainty over the firm’s financials.

As a result, Silvergate’s stock price (SI) has plummeted roughly 60% since March 1, while the total combined market cap of crypto has dropped around 5.5% to $1.072 trillion in that same time frame.

Speaking with CNBC on March. 6, economist Noelle Acheson, the author of the Crypto is Macro Now newsletter, suggested that if Silverbank were to file for bankruptcy, it would give regulators a far greater excuse to clamp down on crypto than before, given the bank’s ties to traditional finance.

“Up until now we’ve been able to say that the fallout of everything that happened last year was contained within the crypto industry — painful, but contained,” Acheson said, adding that:

“If Silvergate goes under then the regulators will be able to say ‘aha, systemic risk, we told you so.’ That will give them even more ammunition to go after crypto and increase their choke on fiat access for crypto businesses.”

White House ‘aware’ of the Silvergate situation, says spokeswoman

The spokeswoman said that she wouldn’t be commenting specifically on Silvergate, but the White House will be actively monitoring the situation with the crypto bank.

The Biden Administration is “aware of the situation” at Silvergate and will continue to monitor reports on the troubled bank as it unfolds, according to a White House spokesperson.

“In recent weeks, banking regulators have released guidelines on how banks should protect themselves from risks associated with crypto,” she said, adding that:

“This is a president that has repeatedly called on Congress to take action to protect everyday Americans from the risk posed by digital assets and he will continue to do so. We won’t speak to this particular company as we have not with other cryptocurrency companies, but we will continue to monitor the reports.”

Silvergate, known as a “crypto bank,” was a key banking partner to a number of major crypto companies and projects.

At Coinbase all client funds continue to be safe, accessible & available.

In light of recent developments & out of an abundance of caution, Coinbase is no longer accepting or initiating payments to or from Silvergate.

— Coinbase (@coinbase) March 2, 2023

Several crypto heavyweights promptly followed suit by either cutting ties or distancing themselves from the bank, including Circle, Paxos, Bitstamp, Galaxy, MicroStrategy and Tether to name a few.

As a result, Silvergate’s stock price (SI) has plummeted roughly 60% since March 1, while the total combined market cap of crypto has dropped around 5.5% to $1.072 trillion in that same time frame.

“Up until now we’ve been able to say that the fallout of everything that happened last year was contained within the crypto industry — painful, but contained,” Acheson said, adding that:

“If Silvergate goes under then the regulators will be able to say ‘aha, systemic risk, we told you so.’ That will give them even more ammunition to go after crypto and increase their choke on fiat access for crypto businesses.”

White House cryptocurrency ‘roadmap’ recommends against pension funds

The Biden administration touted its comprehensive framework and encouraged regulators and Congress to tighten the screws on crypto in a new statement.

The White House released a statement on Jan. 27 that provided United States President Joe Biden’s administration a roadmap for mitigating risks associated with cryptocurrencies. The administration’s legislative guidance addressed much of the document to the U.S. Congress.

The authors of the statement outlined a two-pronged path forward. They wrote:

“We have spent the past year identifying the risks of cryptocurrencies and acting to mitigate them using the authorities that the Executive Branch has.”

The first element in the road map is the administration’s “first-ever” comprehensive framework for digital asset development, released in September 2022. That document was based on reports mandated by the president’s executive order on Ensuring Responsible Development of Digital Assets issued in March 2022.

Second, executive agencies are increasing enforcement and issuing new guidance. According to the statement, government agencies are developing public awareness programs “to help consumers understand the risks of buying cryptocurrencies.” It mentioned banking regulators in particular and encouraged them to continue their efforts. The statement was issued the same day the Fed denied digital asset Custodia Bank membership in the Federal Reserve System.

We’ll keep mitigating crypto risks by protecting investors and holding bad actors accountable. We’re ready to work w/ Congress to address regulatory gaps, but it would be a grave mistake to reverse course and deepen ties btw crypto and the financial systemhttps://t.co/qLBetgMG1e

— Brian Deese (@BrianDeeseNEC) January 27, 2023

Notably, the statement went on to provide a wish list of actions the administration would like to see from Congress, saying:

“Congress, too, needs to step up its efforts.”

The White House has a sizable list of tasks for legislators. Its recommendations include expanding regulators’ powers, strengthening disclosure requirements, strengthening penalties for misconduct, increasing funding for law enforcement and following the advice found in the Financial Stability Oversight Council report mandated by the executive order.

The authors also took the opportunity to urge Congress not to do things too:

“Legislation should not greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets.”

They noted that limiting such actions prevented the spread of the “turmoil in cryptocurrencies” to the broader financial system.

White House silent on whether it will return $5.2M in donations from SBF

A White House spokesperson dodged point-blank questioning on whether President Joe Biden is planning to return the political donations from Sam Bankman-Fried.

White House press secretary Karine Jean-Pierre has declined to answer questions from a reporter on whether United States President Joe Biden will return the $5.2 million in campaign donations previously given by FTX founder Sam Bankman-Fried.

“Will the president return that donation?” Associated Press reporter Zeke Miller asked in a Dec. 13 press briefing. “Does he call on all politicians who got campaign donations that may have come from customer money to return those funds?”

“I’m covered here by the Hatch Act,” Jean-Pierre responded, adding she was “limited on what I can say.”

”Anything that’s connected to political contributions, from here I would have to refer you to the DNC,” she said, referring to the Democratic National Committee, the governing body of the U.S. Democratic Party.

The Hatch Act is a federal law prohibiting those employed in the executive branch of government from being involved in political campaign activities.

“I’m asking the president’s opinion though,” Miller pressed. Jean-Pierre repeated that she was “covered by the Hatch Act,” adding:

“I just can’t talk to political contributions or anything related to that I cannot speak about it from here.”

Miller again pushed for Jean-Pierre’s response on Biden’s opinion, bushe said she couldn’t speak about “even his opinion, even his thoughts about the contributions, donations — I cannot speak […] about that from here.”

Bankman-Fried was charged with violations of campaign finance laws on Dec. 13, including contribution violations and obstructing the Federal Election Commission’s functions, along with making contributions in the name of others.

He was the second-largest “CEO-contributor” to Biden’s 2020 presidential campaign, with his $5.2 million in donations behind only the $56 million of contributions from media mogul Michael Bloomberg.

The FTX founder was also a top individual donor in the 2022 mid-term elections, again the second-largest Democratic Party contributor in the cycle,with $36.8 million funneled to its candidates.

Public records show Bankman-Fried sent just over $240,000 to Republicans during the mid-terms, but he admitted to so-called dark money donations in a Nov. 16 interview with cryptocurrency vlogger Tiffany Fong, saying he “donated about the same to both parties.”

Politicians on the receiving end of Bankman-Fried’s and other FTX executives’ political donations may be forced to return them to the bankruptcy trustee in any case, due to bankruptcy proceedings. Up $73 million in donations could be recalled to repay the failed exchange’s creditors.

Some politicians have already resorted to giving away their cash to charity in an attempt to distance themselves from the company and its donations.

White House says ‘prudent regulation of cryptocurrencies‘ is needed, hinting at situation with FTX

According to Press Secretary Karine Jean-Pierre, the administration and financial agencies will “closely monitor” developments in the crypto market.

The White House said the administration of United States President Joseph Biden is monitoring the situation with the recent crypto market crash but deferred to independent regulators for any potential enforcement actions.

In a Nov. 10 press briefing, White House Press Secretary Karine Jean-Pierre said Biden was aware of the ongoing situation with the crypto market, hinting at FTX’s liquidity crisis. According to the press secretary, the administration and financial agencies will “closely monitor” developments.

“The administration […] has consistently maintained that without proper oversight, cryptocurrencies risk harming everyday Americans,” said Jean-Pierre. “The most recent news further underscores these concerns and highlights why prudent regulation of cryptocurrencies is indeed needed.”

*White House Press Secretary Karine Jean-Pierre answering questions on Nov. 10. Source: YouTube*

The statement from the executive branch was the latest response in a string of reactions from financial regulators and lawmakers in the United States. House Financial Services Committee Chair Maxine Waters pushed for additional federal oversight of crypto trading platforms and consumer protection amid FTX facing liquidity issues on Nov. 10, and Representative Tom Emmer accused Securities and Exchange Commission Chair Gary Gensler of working with FTX CEO Sam Bankman-Fried to establish a “regulatory monopoly.”

In March, President Biden signed an executive order aimed at establishing a framework for digital assets in the United States. Government departments have subsequently released reports in accordance with the order, including the Treasury Department, on the potential opportunities and risks of digital assets, recommending research into stablecoins and a central bank digital currency.

Bankman-Fried reportedly donated more than $5 million to then-presidential candidate Biden in the 2020 election.