CRS Summarizes Clarity for Payment Stablecoins Act

The Congressional Research Service ("CRS") summarized the proposed Clarity for Payment Stablecoins Act (H.R. 4766) and an implementing regulatory framework.

In an Insight Report, CRS said that under the proposed legislation (see previous coverage) payment stablecoin issuers would be (i) required to hold one dollar of permitted reserves per dollar's worth of stablecoin, (ii) prohibited from using reserves except for the purpose of creating liquidity for redemptions, (iii) required to establish and disclose its stablecoin redemption procedures and (iv) required to generate monthly reports as to the amount of outstanding stablecoins and reserve levels. CRS explained that the proposal would establish a regulatory framework for stablecoins, "a federal or state option for stablecoin issuers" where "banks and credit unions would be subject to federal regulation" and "nonbanks would have the option to be subject to state or federal registration and oversight." The bill clarifies that payment stablecoins would not be subject to the jurisdiction of the SEC nor the CFTC and are not considered securities or commodities.

CRS highlighted that the proposal directs regulators to evaluate applications for issuance on three key principles:

• the applicant's ability to meet "baseline" requirements;
• the "general character and fitness of the management of the applicant"; and
• associated consumer risks and benefits.

CRS stated that the proposed legislation would implement a two-year moratorium on issuing new "endogenously collateralized stablecoins" (a/k/a "algorithmic stablecoins") to allow for the study of such stablecoin types following TerraUSD's $16 billion loss in value in 2022.