In the U.S., stablecoins may be regulated by two bills recently proposed by members of Congress. The first bill, “Stablecoins are Securities Act of 2019,” aims to classify “managed stablecoins” as securities. The second bill, which is still untitled, could limit directors and executives of publicly listed companies from holding managed stablecoins. Both bills are in draft form and may not be enacted. According to CNBC, the two federal bills could greatly affect Facebook’s proposed stablecoin, Libra.[1]
On November 21, 2019, Congresswoman Sylvia Garcia (D-TX) sponsored the bill, “Stablecoins are Securities Act of 2019,” (“Garcia Bill”) which states that “digital assets, known as managed stablecoins, are investment contracts and therefore are securities within the meaning given the term in section 2(a) of the Securities Act of 1933.”
In the Garcia Bill, the term “managed stablecoin” is defined as any digital asset that is not registered under the federal statute regulating mutual funds and exchange-traded funds, and that satisfies at least one of the following criteria:
- the market value of such digital asset is determined, in whole or in significant part, directly or indirectly, by reference to the value of a pool or basket of assets, including digital assets, held, designated or managed by one or more persons; or
- one or more holders of such digital asset, directly or indirectly, are entitled to obtain consideration or other assets, including other digital assets and any sovereign currency of a foreign government or the United States, in exchange for the digital asset, the amount of which payment is determined, in whole or in significant part, directly or indirectly, on the basis of the value of a pool or basket of assets, including digital assets, held, designated or managed by one or more persons.[2]
Interestingly, the Garcia Bill also proposes a general definition of the term digital asset:
The term ‘digital asset’ means any asset, contract, agreement or transaction, including a representation of an economic, proprietary, or access right, that is stored in a computer-readable form and has or will have a transaction history that is recorded in a distributed ledger, digital ledger or other digital data structure. A digital asset may be a managed stablecoin and a security.[3]
The second bill (“San Nicolas Bill”) is sponsored by Del. Michael San Nicolas (D-Guam). It aims to “prohibit the listing of certain securities if the issuer, a director of the issuer, or an executive officer of the issuer buys or sells a managed stablecoin, and for other purposes.”[4]
As a result, the San Nicolas Bill would seem to require the Securities and Exchange Commission to delist the securities of any public company whose executives hold managed stablecoins. Both bills are currently in draft form and have not been formally introduced, so it is difficult to predict their trajectories.
In June 2019, Facebook announced the creation of Libra, a new digital asset or cryptocurrency. Importantly, Libra’s value will be determined by a basket of assets.[5] As such, it would fall under both proposed bills. This would result in more regulatory hurdles for the social media giant’s cryptocurrency plan.
For more information and a description of stable coins, please see our previous article
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004 or Ray Luckiram at (416) 601-0591.
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[1] See Feiner, New bill would make Facebook’s cryptocurrency a security under the law, inviting greater regulation, available at https://www.cnbc.com/2019/11/21/new-bill-would-make-facebooks-cryptocurrency-a-security-under-the-law.html
[2] Section 3, Stablecoins are Securities Act of 2019, H.R.5197 — 116th Congress (2019-2020), Introduced in House (11/20/2019).
[3] Section 3, Stablecoins are Securities Act of 2019, H.R.5197 — 116th Congress (2019-2020), Introduced in House (11/20/2019).
[4] Section 1, A Bill, H.R.5197 — 116th Congress (2019-2020), Introduced in House (11/20/2019).
[5] See Libra Association Members, Libra White Paper, available at https://libra.org/en-US/wp-content/uploads/sites/23/2019/06/LibraWhitePaper_en_US.pdf
