Stablecoins are Payment Medium, Not Securities

A US Treasury official recently stated that stablecoins need to be treated as a payment medium and not as securities or digital assets.

Jean Nellie Liang, Under Secretary for Domestic Finance, in testimony before the Committee on Financial Services laid out the case for regulating stablecoins as a payment medium, saying stablecoin issuers should be regulated and limited to insured depository institutions.

She argues that only in this way can the government deal with the “prudential risks” of stablecoins, which are run risk (a run on a stablecoin), payment system risk (a breakdown in a stablecoin arrangement), and concentration of economic power (a commercial company issuing a stablecoin).

While some have claimed that stablecoins are securities or money market funds, there is no point, she says, in having the SEC regulate them. “Requirements that apply generally to issuers of public securities are not designed to address concerns about run risk, payment system risk, or concentration of economic power.”

She argues the same point as regards claims that stablecoins are digital assets that need to be regulated as commodities. The CFTC has tools for ensuring the integrity of commodities markets, “but they are not intended to address prudential risks” of a payment system.

Basically, you need to regulate stablecoins for what they are and not try to make them fit in existing categories. This makes perfect sense.