On April 8, Acting Comptroller of the Currency Michael J. Hsu discussed many aspects of stablecoins (we have already discussed the President’s Stablecoin Task Force report and Hsu’s comments here). In his speech at the Georgetown University Law Center, Hsu remarked that stablecoins are a “hot topic” among policymakers and posed three considerations that speak to the architecture of stablecoins.

• Stability. Hsu asked if there should be a requirement for all stablecoin issuers to comply with a fixed set of security and soundness requirements (as is the case with banks), or let them choose among a wider set of licensing options, each with distinct risk-reward trade-offs. Hsu generalized that the greater the variability between stablecoins, the greater the risk of holding the stablecoin.




• Interoperability. Hsu explains that there are two levels of interoperability to consider. The first is interoperability within a stablecoin through blockchains. Different blockchains are not interoperable. For example, a user cannot buy something on one blockchain with a native stablecoin from another blockchain. Second, interoperability between stablecoins. Interoperability between stablecoins would help ensure “openness and inclusiveness” and “facilitate wider use of the US dollar – not a stablecoin backed by a particular company – as a base currency for commerce and finance in a blockchain-based digital future”.




• Separability. Hsu explained that blockchain-based money promises to be “always on”, irreversible, programmable and settled in real time. However, these benefits come with unique risks, as sometimes a financial transaction may need to be reversed (e.g. a refund). To mitigate these unique risks, Hsu suggests that blockchain-based activities could be conducted in a stand-alone bank or a separate chartered entity from the insured depository institution’s subsidiary and other regulated affiliates.

put into practice: These statements should be considered in light of the recent push to regulate the use and transmission of virtual currencies (we have already discussed this recent trend in previous Consumer Finance & FinTech blog posts here, here, here and here). The regulatory frameworks that apply to stablecoin issuers and service providers are seen by many as inconsistent, creating opportunities for regulatory arbitrage and uncertainty among stablecoin users. Institutions that engage in the issuance or custody of stablecoins should be aware of the unique legal issues that arise.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.