States Code, any person holding a payment stablecoin issued by the permitted payment stablecoin issuer shall be deemed to hold a claim; and 11 (3) the priority under paragraph (1) shall not apply to claims other than those arising directly from the holding of payment stablecoins. In short, my reading of Section 11 means stablecoins have a super-priority lien in bankruptcy. The international law firm, Morgan Lewis, put it more succinctly in stating, “Section 11(a) of the Act establishes a general rule that the claims of holders of payment stablecoins to the reserves backing the stablecoins have priority over all other claims in the bankruptcy case. The general rule reinforces a stablecoin holder’s redemption right as creating a ‘hard promise’ by the permitted stablecoin issuer to redeem the holder’s payment stablecoins for fiat currency at the election of the stablecoin holder. The effect of the general rule is to give to the stablecoin holders what is tantamount to a security interest in the reserves to secure the permitted stablecoin issuer’s redemption obligations to the stablecoin holders. “However, the stablecoin holders are actually treated more favorably than secured creditors in a bankruptcy case. There is no possibility for the debtor issuer under Section 364 of the Bankruptcy Code to obtain credit based on the reserves even if the stablecoin holders are otherwise adequately protected. Not only is the debtor issuer prohibited from granting a security interest in the reserves under Section 4(a)(2) of the proposed Act, but also, under Section 11(e)(3) of the proposed Act, the reserves are not considered even to be included in the debtor issuer’s bankruptcy estate.” I have not practiced in bankruptcy court for some time, but my reading of Section 11 leads me to believe that being a stablecoin holder leaves you in a better position than any creditor in any form of insolvency. Why does that matter? In my opinion, if these provisions are not amended, astute depositors will recognize the super-priority position of stablecoin and move traditional cash deposits to stablecoin. That creates a real problem. The question leading the title of this article is What Lies Ahead? I do not know the answer to that, but I am concerned that if these sections are not amended, it could have serious negative effects on the banking ecosystem. In order to control What Lies Ahead, we must have Section 11 amended to ensure that traditional deposits and security interests are protected. If you find this as concerning as I do, I encourage talking to your legislators about these issues. Your voice matters. YOUR DEBT PORTFOLIO MAY NOT BE KEPT IN HERE, BUT IT’S STILL AN ASSET They may not be currency, but debt portfolios which include credit card, auto deficiency, overdraft, judgements or commercial and consumer loans definitely have value. We’ll buy your debt portfolio from the last four years, with minimum sizes of $100k on at least ten accounts and no maximums. We’ll even walk you through the sales process to help with compliance and data integrity. To offload your debt portfolio, contact Craig Geisler at cgeisler@cherrywoodenterprises.com or (321) 247-5066. 17 Colorado Banker
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