The glaring omission in stablecoin legislation

There is a glaring omission in the stablecoin bill recently introduced in the House that should concern both Republicans and Democrats. 

The flaw is that the bill does not deny government licensing authorities the discretion to coerce stablecoin protocols to deny services to lawful but politically disfavored businesses. This gap needs to be addressed to prevent political pressure being placed on stablecoin promoters to bar transactions with legal, but unpopular industries.

It is entirely foreseeable that private-sector sponsors of stablecoins or even commercial servicers such as wallet providers and others could be put under political pressure to disable financial transactions with disfavored groups in a similar way to how many social media platforms, most notably Twitter, have censored a broad range of constitutionally protected speech to appease government officials. 

“Operation Choke Point” comes to mind, an Obama-era U.S. government initiative to pressure financial institutions into denying services to lawful but politically disfavored businesses such as pawn shops, same-day check cashers, gun manufacturers and so on. 

In a future where the provision of stablecoin services will be subject to federal or state licensure, commercial sponsors of such services may find their licenses placed in jeopardy if their stablecoins are used to pay for things some current or future bureaucrat does not want citizens to have, however legal.

What if some government agency could restrict your ability to support political candidates and causes they disapproved of or activities and pastimes they disfavored? What if you were prevented from donating to advocacy groups for such causes as gay or transgender rights?  Or, for that matter, gun rights?  After all, one group’s celebrated causes and respected liberties may be another party’s triggering issues and sanctionable pastimes.

The simple fix to this problem is to provide that government licensing authorities have no discretion to pick and choose among otherwise lawful activities and condition licensure on the stablecoin’s denial of legal transactions.

Such a provision would provide legal certainty to stablecoin customers. Moreover, it would enable stablecoin operators to reject overweening government pressure to disable otherwise legal transactions.  Without it, stablecoin transactions will be frighteningly beholden to the shifting political winds of Washington. 

That is why legal certainty that licensed stablecoins may honor all lawful activity is essential to the overall success of this nascent innovation.  Proposed legislation should enact it as a matter of law.

Chris Giancarlo served as thirteenth chairman of the U.S. Commodity Futures Trading Commission. He is senior counsel at Willkie Farr & Gallagher LLP and the author of CryptoDad: the Fight for the Future of Money (Wiley, 2021).