If you watch or read the news, stablecoin is featured nearly daily in the headlines. Some sing its praises, others say it is the end of community banking. But most, if they’re being honest, don’t really know a lot about stablecoin. That shouldn’t be a surprise, considering how much has changed since stablecoin’s initial introduction. Investopedia defines stablecoin as “cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity or financial instrument.” We now know that the value to which stablecoin is “pegged” is the United States dollar. We have also seen the GENIUS Act (S. 1582) signed into law with the intent of creating a regulatory framework to manage stablecoin. The GENIUS Act itself is 48 pages; a little too long to talk about in detail in this article, but let’s look at the broader points before tackling some of the more narrow concerns. Congress.gov summarizes the GENIUS Act as, “Under the bill, only permitted issuers may issue a payment stablecoin for use by U.S. persons, subject to certain exceptions and safe harbors. Permitted issuers must be a subsidiary of an insured depository institution, a federal-qualified non-bank payment stablecoin issuer, or a state-qualified payment stablecoin issuer. “Permitted issuers must be regulated by the appropriate federal or state regulator. Permitted issuers may choose federal or state regulation; however, state regulation is limited to those with a stablecoin issuance of $10 billion or less. “Permitted issuers must maintain reserves backing the stablecoin on a one-to-one basis using U.S. currency or other similarly liquid assets as specified. Permitted issuers must also publicly disclose their redemption policy and publish monthly the details of their reserves. “The bill specifies requirements for (1) reusing reserves; (2) providing safekeeping services for stablecoins; and (3) supervisory, examination and enforcement authority over federal-qualified issuers. “The bill allows foreign issuers of stablecoins to offer, sell or make available in the United States stablecoins using digital asset service providers, subject to requirements, including a determination by the Department of the Treasury that they are subject to comparable foreign regulations. “Under the bill, permitted payment stablecoins are not considered securities under securities law. However, permitted issuers are subject to the Bank Secrecy Act for anti-money laundering and related purposes.” In short, stablecoin is here, and there are now some rules as to how it is to be treated under the law. However, in reading the GENIUS Act, my concern goes to the rarely discussed Section 11 regarding the treatment of stablecoin insolvency proceedings. It states: (a) IN GENERAL. — Subject to section 507(e) of title 11, United States Code, as added by subsection (d), in any insolvency proceeding of a permitted payment stablecoin issuer under Federal or State law, including any proceeding under that title and any insolvency proceeding administered by a State payment stablecoin regulator with respect to a permitted payment stablecoin issuer — (1) the claim of a person holding payment stablecoins issued by the permitted payment stablecoin issuer shall have priority, on a ratable basis with the claims of other persons holding such payment stablecoins, over the claims of the permitted payment stablecoin issuer and any other holder of claims against the permitted payment stablecoin issuer, with respect to required payment stablecoin reserves; (2) notwithstanding any other provision of law, including the definition of ‘‘claim” under section 101(5) of title 11, United Stablecoin: What Lies Ahead By Timothy Schenk, General Counsel, Kentucky Bankers Association Colorado Banker 16
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