Thread by @rohangrey

Some thoughts on @nic__carter's piece on regulating stablecoins:

1. Nic is correct that "fiat-backed stablecoins are simply a crypto-native wrapper for commercial bank dollars." That is exactly the problem.

2. Nic is also correct that the *actual*

coindesk.com/nationalizing-…

debate we should be having is whether stablecoin issuers should be regulated via a new federal money transmitter charter or via updated bank chartering laws. What he gets wrong about the STABLE Act is that it specifically allows regulators to create new rules for narrow banks,

so that the relevant choice is not between a 'vanilla banking license' and a new money transmitter license, but between a narrow bank license and a money transmitter license.

3. Nic is wrong that with stablecoins, "the representation of value is simply leaving the commercial

bank system and hopping onto an alternative set of rails." The value does not, in fact, "leave" the commercial bank system, it simply piggy-backs on top of it. Indeed, the guarantees of safety within a money transmitter framework are dependent on the guarantees provided by the

underlying relationship with a licensed commercial bank. In other words, peel back any money transmitter business model, and there's always a bank somewhere (and behind them, the central bank and the govt). Which is why the STABLE Act proposes to skip the unnecessary middleman &

have stablecoin issuers have direct access to the Fed's balance sheet, like other banks, and/or require banks to take responsibility for the stablecoins issued on the backs of their balance sheet directly, avoiding the 'rent-a-charter' phenomenon we see with fintechs today.

4. I also appreciate Nic's honestly that all the propaganda and hype about stablecoins being inherently 'beyond the reach of regulators' is bullshit. As he notes, "stablecoin issuers register with FinCEN, obtain money transmitter licenses on a state by state basis, maintain

stable bank and audit relationships, and in some cases obtain even more rigorous regulatory designations like the NY Trust Charter." The actual question is not "regulate or don't regulate", it's "what is an effective regulatory model?". Obviously, our view is that the patchwork

of 50-state money transmitter laws is problematic, as is, indeed, the broader trend of letting shadow banks avoid more effective regulatory oversight by hiding behind the money transmitter label, which we've already observed with PayPal & others:

ftalphaville.ft.com/2015/08/06/213…

5. I'd note one clarification: Nic cites to @GeorgeSelgin as authority for the claim that stablecoin issuers don't engage in banking because they don't make loans. This is, in my opinion, simply inaccurate. One of the core activities of banking is accepting deposits & processing

payments. There have been many 'narrow bank' models in different periods of history and across jurisdictions - the idea a bank must issue loans to be a bank is simply not true, and more importantly inconsistent with existing law, which requires any actor that accepts deposits to

get a banking charter. If the argument is that stablecoins are not deposits (see point 1 above), then we can disagree on that basis, but the idea an entity must issue loans to be a bank is simply wrong.

6. Finally, while I disagree with Nic's characterization of how $USD

denominated stablecoins actually function across the world, I do agree that they currently function as a tool of American foreign policy, or at the very least have serious implications for foreign policy/national security. Which is why I find the inconsistency in his position

so bizarre - does he really believe that the US government is uniquely incapable of forcing licensed money transmitters to engage in Operation Choke Point style activities vis-a-vis chartered banks? I understand the rhetorical appeal of positioning stablecoins in opposition to

manipulation by law enforcement, but it's not really coherent to hold that view *while simultaneously claiming that all stablecoin issuers should be required to get money transmitter licenses and be subject to federal regulation on that basis*. Pick a lane, mate.