Stablecoin probe by the Senate Committee on Banking, Housing and Urban Affairs

On November 23, 2021, the Senate Committee on Banking, Housing and Urban Affairs sent a series of letters to prominent issuers of stablecoins and cryptocurrency exchanges. Citing the President’s recent report from the President’s Financial Markets Stable Coins Working Group, the letters aim to clarify the basic operational characteristics of various stablecoins that the committee believes are critical to improving its understanding of digital assets.

Letters vary slightly from company to company, especially between issuers and exchanges, but generally seek a subset of the following information:

  • Please describe the basic buying, trading or minting processes through which clients can acquire your stablecoin and other stablecoins traded on your exchange, for US dollars. In your response, explain any limitations or qualifications relevant to initiating and completing this process.

  • Please detail the process of exchanging or exchanging your stablecoin, as well as any other stablecoin on your platform, and receive US dollars. Here, too, identify any requirements or limits, including any minimum reimbursement size, waiting period, or qualifications.

  • Since the creation of your stablecoin, how many tokens have been issued and how many have been exchanged? In the past 12 months, what is the largest percentage of your stablecoin in circulation at the start of a calendar week to be redeemed in the next seven days?

  • Briefly describe the market or operational conditions that would prevent the purchase, exchange or redemption of your stablecoin and any other stablecoin on your platform, for US dollars or for another digital asset. In order to answer this question, do not list or describe any legal or regulatory limitations currently described in a user agreement or terms of use. For each condition identified, please provide at least one example that has occurred in the past 12 months and its duration.

  • Please identify any trading platforms that have enhanced capabilities, privileges or special arrangements with respect to your stablecoin, identifying these characteristics and their basis, for example, contractual or common control.

  • Please describe how customers would be affected by a sudden loss of liquidity from one or more stablecoins. Please also summarize any internal reviews or studies that your platform has conducted on how adverse events or shocks in the stablecoins markets would affect the financial condition of your exchange.

  • Please summarize any internal reviews or studies your business has conducted on how specific levels of redemptions or trades would affect your stablecoin, including its convertibility to U.S. dollars, or affect your business’ financial condition.

  • Please identify the criteria you use to assess between stable coins following a fork event. Also describe the potential effects of a fork on liquidity or transactions involving the resulting stablecoins, as well as clients with affected stablecoin positions. If a fork event has occurred in a stablecoin exchange on your platform in the past 12 months, please discuss what happened and your exchange’s response.

In a Press release Announcing the letters, President Sherrod Brown (D-OH) highlighted the potential difficulties consumers and investors may face in understanding how stablecoins work and their potential risks. “I am very concerned about the non-standard terms applicable to the redemption of particular stablecoins, how these terms differ from traditional assets and how these terms may not be consistent on digital asset trading platforms.” , wrote President Brown to a stock exchange. The letters ask for answers by December 3.

Copyright © 2021, Hunton Andrews Kurth LLP. All rights reserved.Revue nationale de droit, volume XI, number 333

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