The state of Texas has declared that stablecoins are money. This recognition represents a huge milestone in the race toward the mass adoption of cryptocurrencies.
Earlier this month, the Texas Department of Banking updated its Supervisory Memorandum — 1037 (“Guidance”), which offers guidance on the application of the Texas Money Services Act (the “Act”) to digital currencies.
The memo divides these virtual currencies into two basic categories: centralized and decentralized. Centralized currencies refer to those “created and issued by a specified source” that “rely on an entity with some form of authority or control over the currency.” Meanwhile, decentralized virtual currencies do not rely on a central repository.
Stablecoins fall into the second category, as they do not depend on any one administrator or central authority. Initially, the Guidance suggested that the Act was only applicable to cases when sovereign currency was directly involved — after all, decentralized currencies (such as Bitcoin, Litecoin…really, any mainstream cryptocurrency) do not constitute money. However, the revised version explained that stablecoins, which are pegged to sovereign currency and offer redemption rights to holders, are now considered as having ”monetary value.”
The document states that “cryptocurrency is not money under the Money Services Act, […] However, when a cryptocurrency transaction does include sovereign currency, it may be money transmission depending on how the sovereign currency is handled. A licensing analysis will be based on the handling of the sovereign currency.” Who is this quote from?
In other words, the TDoB understand stablecoins as having monetary value, given that these decentralized virtual currencies provide holders with a redemption right to exchange them back into sovereign currency at any time.
The fact that Texas is addressing stablecoins in its money regulatory guidance is relevant not because they are doing it first — though they are, which deserves separate recognition. Most importantly, this sets a precedent for other agencies to devote attention to this issue.
There’s No Doubt: Stablecoins Are Here To Stay
Since Tether first appeared in the cryptocurrency market, skeptics have pointed out that this stablecoin is traded at a discount to parity with the US dollar. The thing is that there is nothing controversial about this practice.
Tether came in handy for investors who were looking for a “safe haven” that would not push them out of the digital assets market in the wake of Bitcoin’s extreme volatility. But the continuous denial of requests for auditing has raised big questions about its trustworthiness and transparency regarding the reserves of fiat required to back up new coins. As a result, the crypto community felt Tether wasn’t really able to keep a 1:1 ratio with the greenback, pushing the coin lower.
But Tether’s $3 billion market cap sent out a clear message: the market needs stablecoins. In recent months, more transparent, reliable options showed up, such as Circle’s USD (USDC), Gemini Dollar (GUSD), TrueUSD (TUSD), and Paxos Standard (PAX).
These new fiat-collateralized cryptocurrencies offerall the great benefits of blockchain technology without putting stability and trust on the line.
“We believe regulation, transparency, and other appropriate disclosures are crucial to mitigating counterparty risk and protecting stablecoin users.”
Sarah Olsen, Head of Business Development at Gemini
By the way, you can watch an interview with her here.
Working hand-in-hand with regulators is definitely the way to go for stable value coins, especially if they intend to provide users with sustainable stability. These coins offer people a truly seamless way to send money abroad in seconds and allow employers to pay salaries and rents, businesses to accept day-to-day payments in crypto, and traders to safeguard their investments when volatility hits.