Senate Is Set to Pass a Stablecoin Bill. Rules for Crypto Exchanges Will Be Harder. — Barrons.com

By Joe LightThe crypto industry appears poised to grab its first major legislative victory as Congress moves closer to passing a bill to regulate stablecoins. Its next goal — legislation regulating exchanges and token issuers — might be a steeper hill to climb.As soon as Monday, the Senate plans to hold a key procedural vote on the so-called GENIUS Act. Among other provisions, the bill would require stablecoins, whose value is typically pegged to the dollar, to hold reserves of liquid, safe assets like Treasury bills. Issuers would also have to follow anti-money-laundering and terrorism finance rules and to give coin holders priority to recoup their money in a bankruptcy.Stablecoins underpin most of the $3.3 trillion market for Bitcoin and other crypto tokens. Rather than pay cash for a token, traders typically use stablecoins, which together have a market value of about $250 billion. The largest such token, called USDT, is issued by Tether Holdings. U.S.-based Circle Internet Financial issues USDC, the second-largest token, which was founded in partnership with crypto trading platform Coinbase Global.While stablecoins are currently used primarily for trading, issuers believe they could soon be a serious challenger to traditional payments networks. Their expectation is that they could also save consumers billions of dollars in fees on remittances and other expensive cross-border transactions.The bill requires 60 votes to move through the Senate, and earlier this month, it appeared the GENIUS Act would sail through with bipartisan support. Even though some Democrats, such as Sen. Elizabeth Warren (D., Mass.) and Rep. Maxine Waters (D., Calif.), have been skeptical of the crypto industry push, many other lawmakers have warmed to the industry. It has spent hundreds of millions of dollars on campaign contributions and lobbying.The bill's recent troubles have hinged on two major issues. First is the potential for big technology companies like Meta Platforms to issue their own stablecoins. A second issue is President Donald Trump's business arrangements with the industry.A revised draft of the bill appears to throw up a roadblock to tech companies issuing stablecoins by requiring nonfinancial public companies to get special approval from a committee. However, the new bill doesn't address concerns that Trump and his family could directly profit from the tokens through its majority ownership of crypto firm World Liberty Financial, which has issued a stablecoin called USD1.A memo, titled "Negotiations Win Summary," circulated among Democratic senators earlier this week, touting "major victories" won since early May, including the new Big Tech language. However, it remains to be seen whether the changes will be enough to ensure passage. The bill is expected to have an easier time in the House of Representatives, which won't require a supermajority for approval.A bigger problem for the crypto industry is what the stablecoin bill's troubles could mean for a separate push to approve legislation that would regulate crypto exchanges like Coinbase Global and the thousands of issuers of crypto tokens. During former President Joe Biden's administration, the Securities and Exchange Commission sued Coinbase — as well as other exchanges and token issuers — for allegedly violating securities laws, charges that Coinbase denied.Trump's SEC promptly dismissed those cases with prejudice, meaning the same cases can't be brought back later. But there is a fear that a future administration could come back with similar allegations if a new law governing crypto market structure doesn't make clear what does and doesn't fall under the SEC's remit."After this, getting market structure is even more important," said Coinbase CEO Brian Armstrong on a conference panel this week with Gillibrand and Sen. Cynthia Lummis (R., Wyo.).How to police crypto exchanges and issuers is a more controversial issue than stablecoins, even within the industry itself. Among the issues are how to decide when a token is sufficiently "decentralized" for it not to be subject to securities laws.Apart from the stablecoin venture, Trump or his family own or have ties to a Bitcoin mining firm, several "meme" coins and so-called nonfungible tokens, and a venture to launch crypto exchange-traded funds, giving many more reasons for Democrats to blanch at the swift passage of a comprehensive crypto bill.It took several near-death experiences for lawmakers potentially to squeak through stablecoin legislation. That might prove to have been the easy part.Write to Joe Light at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.