With the advent of 2020, U.S. lawmakers are drafting relevant bills for the cryptocurrency space, clearly defining stablecoins, and providing regulatory clarity for tech companies like Facebook that want to create their own cryptocurrencies.
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On July 15, 2019, the Democratic Majority of the House Financial Services Committee of the U.S. House of Representatives introduced draft legislation for the "Keep Big Tech Out Of Finance Act". Although the legislation specifically targets Libra, a new digital currency led by Facebook, the proposal aims to prevent large tech companies from running similar businesses like financial institutions.
According to a copy of the draft legislation, large tech companies are defined as companies that provide online platform services with annual revenues of at least $ 25 billion. Based on this definition, the bill specifically proposes:
"Large utility platforms must not create, maintain or operate digital assets that are intended to be widely used as a medium of exchange, unit of account, value store or any other similar function as defined by the Governors of the Federal Reserve System."
Facebook still plans to launch Libra, regulators express concern
Large tech company Facebook still plans to launch Libra and continue to develop the stablecoin network. Facebook also plans to launch a series of new features in the coming months, which are set out in a press release issued on November 15.
Although Facebook has not set any launch date for Libra, regulators around the world have expressed concern.
As a follow-up to the Act prohibiting large tech companies from conducting financial operations, Maxine Waters, chairman of the U.S. House of Representatives Financial Services Committee, expressed her negative attitude toward Libra, targeting Libra on July 17, 2019 In the opening statement of her hearing, she asked Facebook to temporarily shelve the plan, saying:
"Given these and other concerns, my colleagues and I wrote to Facebook earlier this month calling on it to stop implementing the plan until regulators and Congress can review and act on issues related to the development of digital currencies by large tech companies "Independent Community Bankers and others support this common sense initiative."
Facebook hasn't done much since the U.S. Congress held a hearing on the Libra incident, but the proposal to ban large tech companies from conducting financial business bills would authorize the federal government's financial regulators to punish violations of up to $ 1 million per day fine.
According to the drafted laws and penalties for non-compliance, large technology companies are likely to think twice before launching their own currency and / or performing banking functions.
Will stablecoins be classified as securities?
On October 18, 2019, the U.S. Congress announced a draft called the Stablecoins Are Securities Act, which aims to regulate the "stable currency." According to the familiar Securities Act of 1933, a "stable currency" is a cryptocurrency with no fluctuations and a stable source of value. The bill reads:
"Since the regulated stablecoin issuer still insists that the stablecoin is not a security, it is necessary for Congress to amend the legal definition of the term securities to include the regulated stablecoin in the scope of securities to provide regulatory clarity."
The proposed legislation appears to be a direct response to Facebook's Libra cryptocurrency. Facebook stated in its white paper that the Libra cryptocurrency is a stablecoin pegged to a basket of fiat currencies.
Assuming the Stablecoin or Securities Act is passed, all laws applicable to stocks and bonds will also apply to stablecoins like Libra. Market policy reporter Nancy Marshall Genzer explained this in an article published on January 1, saying:
"The bill holds that digital currencies like Libra are linked to a stable basket of currencies, so this currency should not be volatile. Securities are stocks and bonds, so the bill holds that all laws applicable to stocks and bonds will also For Libra. "
Will these bills scare Facebook?
All indications are that Facebook will not abandon the release of Libra this year. Cointelegraph previously reported that Facebook has recently updated the Libra white paper.
Although it appears that the biggest change in the white paper is the cancellation of dividends to early Libra investors, others believe that these changes may address concerns that Libra is classified as a security.
Libra's white paper originally mentioned dividends and stated that "the interest on its reserve assets will be used for system maintenance, reducing transaction costs, promoting growth, and paying dividends to early investors".
However, as Brummer pointed out in an article about these changes, all descriptions of "paying dividends" have been completely removed. Although there is a theoretical basis behind these changes, initial speculation about its motivations is that Facebook wants to prevent this new financial product from being classified as financial securities.