New law aims to enhance security of cryptocurrency

On July 18, the United States implemented the GENIUS Act, marking the first significant American law aimed at supervising cryptocurrency. Specifically targeting stablecoins, a form of digital currency that aligns its value with a fiat currency, typically the U.S. dollar, this legislation gained support from a collaborative effort among lawmakers.

Harvard Law Professor Howell Jackson J.D./M.B.A. ’82, who specializes in financial and securities regulation, praised the regulatory initiative. He highlighted the benefits of stablecoins in facilitating speedy and efficient financial transactions but also underlined the potential risks they pose to consumers and the economy. By regulating this burgeoning sector, the U.S. aims to position itself as a pioneer in digital currencies while safeguarding the public from illicit activities.

Jackson noted that stablecoins represent a significant market, with over $250 billion worth of tokens currently in circulation. He emphasized the transformative impact stablecoins could have on payment systems, potentially generating substantial savings for consumers. As a former consultant to the Biden administration on digital asset policy, Jackson expressed optimism about the regulatory framework established by the GENIUS Act.

While Jackson acknowledged early drawbacks in the legislation, such as broad exemptions for foreign stablecoin issuers like Tether, he commended Senate Democrats and Republicans for addressing these concerns before the bill’s approval. According to Jackson, the final version of the GENIUS Act reflects collaborative efforts to enhance the regulatory landscape of stablecoins.

In an exclusive interview with Harvard Law Today, Jackson delved into the intricacies of stablecoins and lawmakers’ interest in regulating them, shedding light on the future trajectory of cryptocurrency regulation. Stablecoins serve as a distinctive segment within the cryptocurrency realm due to their value pegged to designated safe assets. Unlike Bitcoin or Ether, which derive their worth solely from market sentiment, stablecoins necessitate reserves to back the entire circulating value.

Jackson likened stablecoins to narrow banks, initially designed to provide a stable value payment instrument for traders engaging in digital currencies. Beyond this primary function, stablecoins offer viable alternatives for cross-border transactions and value preservation in regions grappling with currency depreciation. Notably, stablecoins hold the potential to revolutionize consumer and business transactions by offering expedited and cost-effective payment services, a significant departure from traditional banking systems.

As for the timing of the U.S. legislation concentrating on stablecoins, Jackson proposed several reasons predating the current administration. Since 2021, stablecoins have garnered attention as the most bank-like aspect of the cryptocurrency landscape, susceptible to bank runs. Following the Biden administration’s reports in 2022 advocating for bank-like regulations, efforts intensified to regulate stablecoins, culminating in the GENIUS Act’s conception. Jackson highlighted the bipartisan consensus developed over the years, emphasizing stablecoins as a legislative priority.

The regulatory focus on stablecoins ensued difficulty in addressing other complex aspects of cryptocurrency. Notably, structuring appropriate market frameworks for trading different digital assets presented intricate challenges, confounded by jurisdictional disputes between regulatory bodies. By navigating the complexities surrounding cryptocurrency regulation, the U.S. asserts its commitment to fostering a secure, innovative financial landscape.