There's a real fundamental problem with stablecoins: any system that effectively allows decentralized peer-to-peer transmission of money is going to fail one or more anti-money-laundering laws. Stablecoins are fundamentally illegal operations under US law.
Calling bullshit on this. First, there's the US law and the SEC. Those are two things. The SEC doesn't produce laws; it merely follows and interprets them. Most laws that it interprets predate most blockchains. There is not much the US government has actually agreed on in terms of financial legislation recently other than to deregulate a lot of things.
It's true that the SEC is very strict on regulating securities (especially given recent history with e.g. mortage companies, enron, and other financial scandals). This has made the crypto ecosystem hard to navigate for people operating outside of the traditional financial system. This has not been helped by them evolving their interpretations and thinking over time. Call it progressive learning. So, it's hard but not impossible, and certainly not illegal.
This is why some of crypto companies with unicorn style valuations are operating in the US with money from US investors. I'm talking about companies like Coinbase and Stellar.
Stellar is a blockchain platform backed by US companies like IBM. The main use case for that platform seems to be stable coins. There are actually several companies offering USD backed stable coins. The point of these coins is not speculative trading as a security but value exchange via p2p transactions between trusted parties on the network. This is also the main use case for Ripple.
So, stable coins are very much legal and practical; and somewhat of an early success story for utility tokens. If you don't believe me, the top trading compant on stellarx.com (today) is a token by a company called stronghold.co: a USD stablecoin. There are five such coins on stellar currently. Stronghold.co are hiring in SFO and presumably operating there under US law and working within the rules set by the SEC.
The reason that Stellar is popular for this stuff is that the people behind it designed it such that it supports the use case well. E.g. it has a lot of built in stuff for dealing with AML that companies like stronghold.co can use to clear transactions or that others can use to clear transactions with them. AML is indeed not optional.
When the law says regulations made by X must be followed those regulations have the force of law.
Also, the Securities Exchange Act of 1934 covers selling stuff. Using a computer to sell stuff does not matter.
“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security."
Yep, mostly these things get decided in a court where the regulations get interpreted by expert witnesses, scrutinized by lawyers, prosecutors, judges, etc. Those interpretations can change over time, can be challenged in supreme courts, are clarified, etc.
In this case you are interpreting the text of the law against a changed context (computers now exist) and making a judgement that "using a computer to sell stuff does not matter". There are a lot of not quite experts making similar value judgments about crypto stuff lately.
So, this stuff is anything but black and white. Hence there are perfectly legal business operating in the US doing stuff with blockchains, crypto currencies, etc. that are so far not ending up in trouble over what they are doing and seemingly complying with however today's SEC chooses to interpret what they are doing. They might change their mind of course over time.
If you are running a business doing this kind of stuff, the SEC is just one of many authorities you have to deal with. We've had some fun navigating the legal jungle that is the EU where each state has its own regulatory bodies, rules, practices, and politicians. The thinking on how to apply their laws is highly fluid. Right now, if you talk to two lawyers about anything crypto, you can get two completely different interpretations. Mostly they have a hard time understanding this stuff period.
Anonymous transactions with large quantities of cash are illegal in most first world countries - there are exceptions for small amounts of cash, but in general, doing the same things as with Bitcoin with cash would also violate anti-money-laundering laws.
In US, if you receive large quantities of cash in some transaction, you're generally required to report the identity of the counterparty (e.g. form 8300 https://www.irs.gov/pub/irs-pdf/f8300.pdf or others depending on line of business). Keeping that cash deal anonymous would be illegal.
That would be true of any cryptocurrency, not just stablecoins. There are money transmitter laws in the US and elsewhere. I think under $10K you don’t need to do KYC.
> Cash is perfectly legal and so is any cash like instrument
With Bitcoin, you can squish around as to whether it’s a commodity or currency and argue as to the actual dollar amount transmitted. With a stable coin, you’re explicitly transmitting U.S. dollars in kind. That’s the AML difference
It’s marketed as a 1:1 equivalent for the regulated hard currency. It may be doing a bad job at that, but it’s essentially a bearer security for U.S. dollars. This case law has been long decided in respect of far cleverer schemes.
"An administrator or exchanger of convertible virtual currencies that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person.
...
To the extent that a user mines Bitcoin and uses the Bitcoin solely for the user’s own purposes and not for the benefit of another, the user is not an MSB under FinCEN’s regulations, because these activities involve neither 'acceptance' nor 'transmission' of the convertible virtual currency and are not the transmission of funds within the meaning of the Rule" [1].
TL; DR Because "virtual currency does not have legal tender status in any jurisdiction," FinCEN does not consider it a "real currency" for purposes of its money transmission rules. Volatility is not taken into account in their analyses.
If cash was invented today it would be illegal. It's grandfathered in for now, but new cash-like instruments aren't going to get the same treatment.
(Also, cryptocurrency is more powerful and thus more dangerous than cash because it can be transmitted electronically and it has no volume or mass. These differences are relevant if you consider that organized crime incurs nontrivial costs in handling large amounts of cash.)
this is obviously nonsense. you are confusing transactions, versus operating money services businesses. Cash is perfectly legal and so is any cash like instrument. It's when you start operating a business that is involved in money transmission, cash or not, that you need to register.
> Cash is perfectly legal and so is any cash like instrument
See what happened to bearer bonds.
Stablecoins are inherently doomed. First, they’re trying to solve the impossible trinity. And second, their untraceabiliry and explicit hard currency link makes them non-compliant AML-wise.
Even if you can make an AML compliant stablecoin, you're going to wind up with low marketshare as you have no competitive edge against over both actual banking and the cryptocurrencies getting used for money laundering. Like, by the time you centralize operations enough to comply with AML laws, you want to be using a database and an API with access tokens and resource identifiers that you hand out to approved participants. At which point you're a fancy bank, pretty much.
If cash gets the axe, these systems will be even more in demand, and the best thing is that they are open source software. Hopefully for those that live in a country where they still can enjoy their democratic freedoms and retain the right to some privacy.
I have indeed described cash. If you are in a set of businesses that includes banks, credit unions, currency exchangers, pawnbrokers, insurance companies, car dealerships, or any other business designated by the Secretary of the Treasury that has cash transactions with a high degree of usefulness in criminal matters, your use of cash is highly regulated. You are legally required to file reports with the Secretary of the Treasury (or their designee) whenever you make certain transactions. Failure to do so is a crime with a $250,000 fine and a five-year jail term. This is doubled if it is part of a pattern of illegal activity involving $100k or more.
Sure, businesses that use stable-coins with "high degree of usefulness in criminal matters" can register and file reports who whoever they need to, just like their cash counterparts - I don't see a problem with that.
My main gripe with today's electronic transactions is that they are not private and too much information is shared between people who I don't know and don't need to know (banks, marketers, hackers). The government doesn't need to know that I bought a car brand y for x, they just need to know that the funds were clean, the bank doesn't need to know any of this info, just that the funds are clean, how much, the 'to' and 'from', that's all. So there's a lot of room for improvement in the existing system.
In the future, crypto-currency stable-coins will offer both privacy and also the ability to prove that the funds are clean, without exposing private details, maybe using things like zero-knowledge proofs.
>The government doesn't need to know that I bought a car brand y for x
What, you're making no sense, the government absolutely needs to know the make, model, and purchase price of any vehicle you buy. This is a standard part of various title and registration forms.
>Sure, businesses that use stable-coins with "high degree of usefulness in criminal matters" can register and file reports who whoever they need to, just like their cash counterparts - I don't see a problem with that.
One of these reports is a written plan that documents the efforts you're going through to prevent money laundering. If this plan isn't good enough, surprise, you get shut down.
You didn't understand me. Yes, the info is demanded by the government (or whatever authority), the purpose is to ensure that the funds were clean & that the car complies with whatever regulation. What I'm saying is that there is technology available to both prove that the funds are clean and regulations are met without revealing the details that should only be between the buyer and seller.
