Not All Stablecoins Are Created Equal – Or Stable


This week’s DC Blockchain Summit from the Chamber of Digital Commerce included a timely panel discussion on stablecoins given the recent Terra Luna stablecoin implosion as well as yesterday’s testimony in front of the House Financial Services Committee by Federal Reserve Vice Chairwoman Lael Brainard.

The Chairwoman was hopeful telling lawmakers that stablecoins and a central bank digital currency (CBDC) could provide a “safe” government-backed settlement layer and “would actually facilitate and enable private sector innovation.”

Panel participants for “Stablecoins and the Future of Money” included:

Are stablecoins innovative?

Moderator Stephen Palley of law firm Anderson Kill led things off by wondering aloud whether stablecoins are truly an innovation.

Caitlin Long, Founder and CEO of Custodia Bank and a well-known, Wyoming-based cryptocurrency advocate, began by saying that they are innovative but not truly crypto. She clarified: “They are not truly crypto in the sense that anything that touches the US dollar – so I’m talking about any sort of backed version of a stablecoin – ultimately has to clear through the Federal Reserve and therefore they’re not decentralized meaning they may be issued on blockchain-like rails, but they are not decentralized. They have an issuer and anything that has an issuer by my definition isn’t decentralized. Ergo, it is quasi-crypto, but not actually crypto.”

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Stablecoin Debacle Speaks To Potential For Congressional Action


Clearly not all stablecoins are stable as crypto experienced a major liquidation moment this past week. How this will affect blockchain regulation in DC remains to be seen, but there is opportunity.

To recap, the stablecoin known as TerraUSD (a.k.a UST -its ticker) went down 90+% and the governance token associated with its peg – Terra LUNA – cratered a similar percentage. Together, the size of the loss is reminiscent of Lehman Brothers and its bankruptcy during the Great Financial Crisis in 2008.

Market cap comparison:

    • Lehman Brothers – $60 billion at its peak in 2007.  Filed for bankruptcy and effectively went to zero in late 2008.
    • TerraUSD – $18.6 billion market cap as of May 8, 2022. Approximately $2 billion as of today according to CoinMarketCap.
    • Terra LUNA – The backing governance token for TerraUSD reached a peak market cap of $41.05 billion as of April 3, 2022. Today, it’s $1.8 billion.

It should be noted that the remaining value for TerraUSD and Terra LUNA could be fleeting as traders try to play an arbitrage opportunity. But, overall the future of both appears bleak.

For now, the promise of providing stability in volatile crypto markets with stablecoins appears to be damaged. False advertising? How will government policymakers react?

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More Stablecoin Legislation: Senator Toomey Proposes The Stablecoin Trust Act

Senator Toomey

In the second bill associated with stablecoins in a week from Republicans, Senator Pat Toomey (R., PA), Ranking Member on the Senate Banking Committee,  announced a draft (PDF) of his new legislation today titled, “Stablecoin Transparency of Reserves and Uniform Safe Transactions Act of 2022,” or more succinctly, “The Stablecoin Trust Act of 2022.”

Sen. Toomey, who sits on the U.S. Senate Banking Committee, explained the what the new legislation does in a press release:

Authorizes three different options to issue payment stablecoins:

    1. Establishes a new federal license designed specifically for stablecoin issuers;
    2. Preserves the state-registered money transmitter status for most existing stablecoin issuers; and
    3. Clarifies that insured depository institutions are permitted to issue stablecoins.

Protects consumers by subjecting all payment stablecoin issuers—regardless of whether they are a state money transmitter or receiving a new federal license—to standardized requirements, including:

      1. Disclosures regarding the reserve assets backing the stablecoin;
      2. Clear redemption policies; and
      3. Subjecting them to routine audits by registered public accounting firms.

Provides much-needed clarity that, at a minimum, stablecoins that do not offer interest are not securities.

Provides a clear regulatory framework for payment stablecoins and rejects the Securities and Exchange Commission’s approach of regulating through enforcement actions.

Applies privacy protections to transactions involving stablecoins and other virtual currencies.

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Tesla Taps DeFi Deal to Seed Construction of Collision Repair Shops

Last week, MakerDAO quietly divulged that Tesla will use MakerDAO’s debt financing capabilities in coordination with 6s Capital in order to build out a collision repair shop strategy.

The Defiant reported, “On March 30, 6s Capital, a commercial lender powered by MakerDAO, closed a real estate financing deal worth $7.8M for Tesla…”

As MakerDAO’s Nik Kunkel told Bankless podcast‘s David Hoffman, the potential long term benefit to Tesla and its stock price is the ability to roll out a wider strategy for collision repair that does not create capital expense but rather, operational expense, given the beneficial way MakerDAO’s loan system works.

On the details, Kunkel said (lightly edited for clarity):

“What’s happening here is that Tesla wants to build a network of collision repair centers, I believe right now in the US, but I think eventually it’s supposed to be a global thing. But they don’t have the capital to build all of these things themselves. And if you think about them doing a capital raise, debt on your balance sheet isn’t the best thing when when you start like analyzing the health company – it would really slow down their ability to execute on this right, [if] it shows up as a capital expenditure.

So what they’re doing is they’re using credit tenant leases, in order to raise the cash to build these. So what a credit tenant lease is, it’s essentially saying that if someone (i.e. 6s Capital) were to finance the construction of this, then Tesla will promise to pay a certain amount of rent. Every year for X number of years, and maybe the amount increases by Y percent per year.”

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