Many things are set to happen this year. As the whole world and the crypto universe marches into 2021, the lawmakers in the US are drafting multiple bills. These bills are meant to provide clarity around the stablecoins. Additionally, they will offer comprehensive regulations for tech companies including Facebook that announced mid last year that it aims to create its local cryptocurrency.
Several other companies are also considering to follow the lead set by Facebook. That interest has made many regulators and governments worldwide to create laws in an attempt to regulate the nascent industry. The Democratic majority of the House Financial Services Committee proposed the draft legislation “Keep Big Tech Out Of Finance Act” on July 15, 2019.
While this particular legislation targets Facebook’s Libra, the proposal is designed to prevent big tech companies from operating like financial institutions. Based on a copy of the draft legislation, a large technology company gets the description of a firm offering any online platform service with more than $25 billion in annual revenue.
Based on that description, the bill specifically proposes that:
“A large platform utility may not establish, maintain, or operate a digital asset that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function, as defined by the Board of Governors of the Federal Reserve System.”
Facebook Is Undeterred In Its Libra Launch, Regulators Fear
Facebook qualifies as a large technology company and has not abandoned its plans to launch Libra. Currently, the social media giant is still developing the stablecoin’s network. Furthermore, the company plans to introduce several other features throughout 2021. Although the company is yet to announce any release date for Libra, regulators worldwide are expressing fears and concerns.
Chairwoman Maxine Waters voiced her negative sentiments about Libra. She was commenting as a major followup to the Keep Big Tech Out Of Finance legislation. She asked Facebook to suspend the Libra project in her July 17 opening statement, saying:
“In light of these and other concerns, my colleagues and I wrote to Facebook earlier this month to call on it to cease implementation of its Libra plans until regulators and Congress can examine the issues associated with a large technology company developing a digital currency, and take action. The Independent Community Bankers of America and others support this commonsense step.”
This Keep Big Tech Out Of Finance proposal is meant to empower the federal government’s financial regulators. They can implement fines of up to $1 million daily for violations of any kind. Interestingly, Facebook has remained quiet after the congressional hearings about Libra.
According to this drafted legislation and penalty that comes in the case that any rule is not met, most of the big tech companies will reconsider before launching any digital currencies and/or engage in performing any bank functions.
Will StableCoins Turn Into Securities?
The US Congress published a draft bill on October 18, 2019, titled “Stablecoins Are Securities Act.” Reliable sources suggest that this legislation is meant to regulate stablecoins that act non-volatile stable sources of value. It was created under the familiar Securities Act of 1933.
That bill states:
“Because issuers of managed stablecoins nevertheless maintain that managed stablecoins are not securities. It is appropriate for Congress to provide clarity by amending statutory definitions of the term security to include managed stablecoins.”
Notably, this proposed legislation appears to be a direct response to Facebook’s Libra project. The social media giant described Libra in its whitepaper as a stablecoin that will be pegged to a basket of fiat currencies.
If the “Stablecoins Are Securities Act” bill does pass, it means that all laws that apply to bonds and stocks will also apply to all stablecoins including Libra. Nancy Marshall-Genzer, a Marketplace policy reporter, explained this scenario in an article:
“This bill says that Stablecoins, which are [digital] coins, like Libra, pegged to a basket of something that is considered stable, so these coins are not supposed to fluctuate. So securities being stocks and bonds, this bill says; “Hey, Libra, all the laws that apply to stocks and bonds are going to apply to you.”
Is Facebook Worried?
Everything suggests that Facebook is not backing down from releasing Libra in 2021. The company recently made updates to the Libra whitepaper. Though it seems like the largest alteration is the elimination of dividends payable to early Libra investors, rumors came up. They suggest that the changes can solve the issue of Libra being classified as a security.
Initially, the Libra whitepaper mentioned dividends. It particularly stated that:
“Interest on its reserve assets would go towards several things. these include system maintenance, keep transaction fees low, assist with growth, and pay dividends to early investors.”
Yet, Brummer highlighted that all mention of ‘paying dividends’ has been entirely removed. Several theories have come up about these edits. But, the main guess at the motive is that Facebook is trying to avoid having its new financial product being classified as financial security.
