A version of this story appeared in the Nightcap Newsletter of CNN Business. To get it in your reception box, register for free here.
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There is a “first of the genre” crypto bill that progresses in the Senate that you are going to be tempted to sleep because a) It is “stablecoins”, which is a crypto subcategory-a parallel financial system, almost no one understands, and perhaps you are tired of reading all the news on news on the news of the Trump family, which can be exact, but maybe Use of the power of the presidency to make a profit? (Icymi: see here, here, here and here.)
But there is a great reason for planting seeds for the financial crisis for the reason why you must understand what this bill is.
So let’s go.
The bill supported by the cryptography industry is called engineering, or “guide and establish national innovation for American stables”.
Stablecoins are a digital active ingredient designed to maintain an ankle from 1 to 1 with the dollar (or any other traditional “stable” currency). Stablecoin should always be equal to a dollar, forever and forever. They are essentially a means for cryptographic investors to keep their money in the world of cryptography, where tokens like Bitcoin and Ether and Solana tend to swing wildly in value.
They are not as well known as Bitcoin, the largest crypto by market value. But in terms of trading volume, the stablecoins are by far the largest players.
The cryptography industry wants the engineering bill because it would extend, for the first time in the 16 years of industry history, the rules of the road for a key sector of their business. Which, of course, encourages greater adoption of the crypto and therefore makes them more money.
The bill would oblige stablecoins to, among other things, have safe and liquid asset reserves such as US dollars and cash bills, and publicly disclose these assets monthly.
This would also impose light restrictions on listed companies who wish to issue their own stablecoins (more about this in a moment).
But “the bill is light on consumer guarantees and limitations to the ability of companies to issue their own stablecoins,” said Eswar Prasad, professor at Cornell University of International Trade and author of the 2021 book “The Future of Money”.
“In addition, the Boosterism of the Crypto and the approach to the regulation of the Trump administration suggest that such guarantees and limitations will not be applied with a lot of force,” added Prasad.
GOOD.
There is the potential for corruption because the Democratic senator Elizabeth Warren and other criticisms have shouted chevrons. In fact, the Democrats initially refused to vote for the bill in part because of Trump’s Crypto regimes, such as the private dinner which takes place this week among the biggest holders of his $ Trump same, a kind of token whose sole purpose is to attract money to his issuer. The White House has repeatedly retained on all questions about the president’s potential ethical conflicts of the president, of his interest in accepting a luxury jet of Qatar to the assets in family cryptography. (“This White House holds us to the highest ethical standards,” said press secretary Karoline Leavitt earlier this month.)
Few things have changed in the bill is between and now. However, some Democrats have abandoned their opposition, probably because they simply accept “the apparent inevitability of finances based on blockchain and crypto more generally,” said Prasad.
One of these Democrats was Senator Mark Warner of Virginia who defended his reversal on the bill on Monday.
“Many senators, including me, have very real concerns about the use by the Trump family of cryptographic technologies to escape surveillance, hide shady financial transactions and take advantage of everyday Americans,” Warner said in a statement. “But we cannot allow this corruption to blind us to the broader reality: blockchain technology is there to stay. If the American legislators do not shape it, others will do it – and not to serve our democratic interests or values.”
The Trump family has a cryptographic platform called World Liberty Financial, which issues a stablecoin called USD1. A few weeks ago, an Abu Dhabi investment company called MGX chose 1 USD to finance an investment of $ 2 billion in the crypto exchange binance (see related crimes). This “gives Trump essentially a reduction in this huge financial agreement,” Warren said in prepared remarks on Monday.
So, yes, it seems that Trump could once again enrich an industry which he supervises directly thanks to a regulatory device which he works quickly in Defang. Meanwhile, the cryptography industry has been plowed millions of dollars in industry super CAPs that strongly gave republican and democratic campaigns last year.
No, there is more!
A large part of the emphasis on corruption is deserved, said Hilary Allen, professor of law at the American university who studied Tuesday a Stablecoin policy. But that’s not what keeps it at night.
She described the engineering bill as “a car accident in slow motion”.
“What makes me lose the most sleep is that this bill would allow the largest technological platforms to become essentially the functional equivalent of banks,” said Allen, who was part of the commission appointed by the congress to study the causes of the 2008 financial crisis. “The last crisis was caused by financial institutions” too big to fail “. The size of some of these technological platforms makes this appear picturesque. ”
Take back a moment back.
The bill does not provide almost no resistance to a technology giant like Meta or Amazon or Google to issue its own stablecoin. (In short, companies should obtain the approval of a regulatory triad representing the Treasury, the FDIC and the Federal Reserve. As Prasad notes, it is not really an obstacle under the largely pro-Crypto administration of Trump.)
Meta has already tried to participate in the Crypto Biz in 2019 with a project called Balance (later renamed DIEM), but abandoned it in 2022 in response to the opposition of legislators and regulators. Now, according to a makeshift report this month, Meta again tests Stablecoin waters, discussing various ways to introduce stablecoins as a means of managing integrated transactions.
The advantages for the meta (or which) are clear: stablecoin transactions maintain users in the application, and the company then brings together all kinds of precious information on its users and how they spend their money.
But what happens when there is a race on the stablescoins or another financial shock that makes these financial companies fail?
Supporters say that there is no reason to think that there will be a race on the stablescoins if they have reserves of 100% in cash. Of course, this thought is based on a “ridiculously optimistic hypothesis” that there will never be a race on a stablecoins, says Allen.
She notes that the common funds for placement of the money market are “almost identical in the structure” and are not immune to the type of panic which causes bank races.
“The common funds for the money market placement were experienced that required renunciations in 2008 and again in 2020, so” I think that the executions on the stablescoins are likely. »»
In fact, she notes, the government has already had a stablecoin when the Silicon Valley Bank failed in 2023. The lender has more than $ 3 billion in a stablecoin called USDC among its vast non-assured deposits.
“We can set up to have essentially to replenish these large technological platforms,” explains Allen.
