The banking crisis sent shockwaves through the cryptocurrency market following news that the largest US stablecoin issuer, Silicon Valley Bank, had seized some of its shares. Circle's exposure caused the USDC coin to short-live, dropping from its usual constant level of $1.00 to $0.87. However, stablecoins rose against the dollar after the US Federal Reserve announced that all bank deposits in Silicon Valley would be liquidated.
The Depp drama has become a heartbreaking moment for coin holders around the world, and it may have been avoided now that "McWaters Bill" is now before Congress.
So, what's McWaters score?
McWaters Bill is the nickname given to House Financial Services Speaker Patrick McHenry and the lawmaker's son, high-ranking member Maxine Waters. In 2022, Representatives McHenry and Waters lead efforts to create a regulatory framework for "payment stable coins", namely stablecoins backed by short-term Treasuries and US dollars. Their bill aims to provide clarity to the industry by specifying which government agency oversees stablecoin regulation, which private entities are allowed to issue stablecoins, and how and where stablecoin assets are held.
In a Congress mired in impasse (especially on crypto issues), the McWaters bill has been a shining example of bipartisanship. But he ran into his fair share of trouble. As senior lawmaker Patrick McHenry said last fall, the bill is an "ugly baby" reflecting the differing interests of Democrats and Republicans. But he also expressed hope that the bill could become law: "However, he is still a child and we are grateful and hopeful that he can grow into something more interesting."
Here are five facts you should know about this influential law:
1. Bill McWaters is alive and well.
In any case, the legislative wrangling died down before the last Congress passed the McWaters Bill, but the bill is alive and well. McHenry and Waters were still busy establishing stable currency rules. And the recent drama surrounding USDC deregulation only highlights the need for clear regulation.
In a recent interview with Bankless, Circle CEO Jeremy Aller shared his thoughts on the bill's prospects in the new Congress: "We need to find a way to regulate it now. So there's a bill that I think will be unveiled in Congress soon, which is a stable currency Here, referring to the McWatters report, Aller explains one of the unique features of the proposal: “Stablecoin rules essentially create a way for private sector players to be formally recognized at the federal level and associated with the Federal Reserve Bank.”
2. The account can reduce the risk of future deposits
The official version of the first draft of the bill included a provision allowing authorized stablecoin providers to gain primary identification with the Fed. This means that eligible stablecoin issuers can deposit their cash reserves directly into federal banks rather than commercial banks.
The financial turmoil of the past month shows why access to master accounts is important for stablecoin providers. Without this, they have no other choice but to deposit their savings in commercial banks. But that exposes them to fractional reserve banking risks, such as the run at a Silicon Valley bank that led to a temporary USDC deprecation.
On the other hand, access to the main account protects stablecoin issuers from this risk. With the Fed as their financial bastion, fintechs can sleep easy knowing their deposits are sheltered from the storms hitting smaller banks. And records created due to bank account foreclosures, as we saw in early March, can be eliminated altogether.
3. McWaters holds the Fed responsible for regulating stablecoins
McWaters' bill also resolves disputes over which government entity should control stablecoins. Because the Securities and Exchange Commission and the Commodity Futures Trading Commission compete for oversight, the Senate bill proposes that this power be transferred to the Financial Conduct Authority. But the McWaters bill opted for none of the above, instead putting the FBI in charge of regulatory oversight.
The bill also includes provisions that would give the FBI the power to determine which non-banks are allowed to issue stablecoins. The Fed will make this decision based on the company's ability to maintain a specific supply of Storticoino currency. These companies must meet strict liquidity and risk management requirements set by the Fed so that consumers can redeem the full dollar value of their stablecoins at any time.
4. Paying with stablecoins ≠ securities
By granting federal powers, the McWaters bill protects stablecoin payments from regulatory interference from the SEC. And goes one step further by explaining that paying stablecoins are not securities.
This clarification is necessary, especially in light of recent events. In February, the SEC accused Paxos of issuing unregulated securities under the stablecoin BUSD. The move raised concerns that all stablecoins would immediately be considered securities if they came under SEC scrutiny. But McWaters' bill set records by: 1) clearly defining what a paying stablecoin means; and 2) clarify that payment stablecoins are not regulated as securities. This opens the door for more companies to enter the space and then create new things.
5. Proposals can pass the DPR, but there are obstacles in the Senate.
McWaters' score came just before the finish line last December. So what are the prospects in the new Congress?
I spoke with Chris Campbell, Assistant Secretary of the Treasury and former member of the Senate Finance Committee, to learn about the situation. Campbell said:
"Of all the cryptocurrency-related bills to be submitted to Congress, the McWaters Bill stands out for being clearly bipartisan. That's why I believe it will eventually pass the House. The bill is 80% written, that alone is a fact. President McHenry and members of the Waters ranks are on finalize the details.” They're checking.
Of course, passing through the Chamber is only half the battle. McWaters' bill has yet to pass into the Senate, which is home to two of the most vocal currency critics in Congress: Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH). Senator Warren previously accused stablecoins of being "one of the darkest parts of the cryptocurrency world" and Senator Brown said that "stablecoins can threaten our economy, our payment system, and our hard-earned money."
But McWaters' bill addresses many of the concerns Warren and Brown have raised about the transparency and liquidity of stablecoin companies. That, combined with increasing bipartisan support for the bill, may be enough to get the McWeathers bill through the Senate, whether Senators Warren and Brown vote or not.