{"id":23621,"date":"2025-04-24T16:46:43","date_gmt":"2025-04-24T16:46:43","guid":{"rendered":"https:\/\/dogewisperer.com\/?p=23621"},"modified":"2025-04-24T16:46:43","modified_gmt":"2025-04-24T16:46:43","slug":"stablecoin-legislation-must-ensure-financial-privacy","status":"publish","type":"post","link":"https:\/\/dogewisperer.com\/?p=23621","title":{"rendered":"Stablecoin Legislation Must Ensure Financial Privacy"},"content":{"rendered":"
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Both the U.S. Senate and House are considering bills creating a regulatory framework for stablecoins, and all of the usual crypto-skeptic refrains have been sung, including the hymn that crypto is for crime.<\/p>\n

For instance, Senator Elizabeth Warren (D-MA) warned<\/a> that the Senate\u2019s GENIUS Act<\/a> \u201cwill supercharge the financing of terrorism.\u201d During debate on the House\u2019s STABLE Act<\/a>, Representative Brad Sherman (D-CA) worried about the use of \u201cunhosted wallets<\/a> to evade\u201d anti-money laundering provisions.<\/p>\n

Not surprisingly, both the GENIUS and STABLE Acts include significant sections on illicit finance, including subjecting stablecoin issuers to the Bank Secrecy Act (BSA). But lawmakers must ensure that the bills\u2019 anti-money laundering measures don\u2019t open the door to unfettered financial surveillance of stablecoin users.<\/p>\n

Stablecoins are crypto tokens that are pegged to the value of another asset, like the U.S. dollar. The general idea is that the stable value of these tokens will promote their use as a digital medium of exchange. Stablecoins can be thought of both as an improvement to existing payment rails<\/a> and as a way to bring the U.S. dollar \u201con-chain.\u201d In other words, stablecoins are a 21st-century upgrade to cash. The Senate and the House have both advanced bills that would create a regulatory regime for \u201cpermitted stablecoin issuers\u201d aimed, in part<\/a>, at ensuring that stablecoins are, in fact, stable.<\/p>\n

But these days, conversations about the dollar, financial services, and crypto seem to go hand-in-hand with conversations about preventing illicit finance. The BSA requires<\/a> financial institutions to help federal agencies detect and prevent money laundering and other crimes by, among other things, keeping records of transactions and filing reports with the government. Both the GENIUS Act and the STABLE Act tackle illicit finance concerns by stating clearly that a permitted stablecoin issuer \u201cshall be treated as a financial institution for the purposes of the Bank Secrecy Act.\u201d<\/p>\n

Designating a permitted stablecoin issuer as a financial institution is comparatively non-controversial. Putting aside the question of whether the BSA is a good (or constitutional)<\/a> way to manage illicit finance risks, permitted stablecoin issuers look a lot like other entities, like banks and trust companies, that are already BSA financial institutions. But it\u2019s not quite so simple.<\/p>\n

The BSA\u2019s surveillance framework requires financial institutions to \u201cknow their customers\u201d and to monitor transactions taking place through the institution. However, such surveillance does not extend to transactions that take place between individuals without the involvement of an institution. For example, the BSA doesn\u2019t apply when cash changes hands between two people, allowing individuals to transact privately.<\/p>\n

While it\u2019s infeasible to track cash transactions in the manner prescribed by the BSA, stablecoins can be tracked across a blockchain as they move between holders, even when the transfers happen between wallets that are unhosted by intermediaries. This characteristic is tempting to those who may want to extend BSA surveillance beyond<\/a> its already expansive (and constitutionally infirm<\/a>) boundaries.<\/p>\n

Fundamentally<\/a>, digital asset transactions that are genuinely peer-to-peer should not be subject to greater government surveillance than peer-to-peer transactions in cash. Applying anti-money laundering provisions to unhosted wallets \u2014 which more closely resemble physical wallets holding cash than bank accounts \u2014 would be a massive expansion of financial surveillance and an unwelcome intrusion into the abilities of Americans to order their financial lives outside the eyes of the government.<\/p>\n

Both the GENIUS and STABLE Acts make clear \u2014 to varying degrees \u2014 that stablecoin issuers must have customer identification programs only for customers who either hold accounts \u201cwith the permitted payment stablecoin issuer\u201d (GENIUS) or who are \u201cinitial holders\u201d of a payment stablecoin (STABLE).<\/p>\n

But the other BSA requirements the bills would impose on stablecoin issuers, including maintaining anti-money laundering compliance programs, retention of records of stablecoin transactions, monitoring and reporting suspicious activity, are not so clearly limited. This leaves the door open to the imposition of broader surveillance requirements on stablecoin transactions that take place away from the issuer, which would be a major encroachment on Americans\u2019 rights to transact privately.<\/p>\n

Fortunately, the sponsors of both bills seem to read the surveillance obligations narrowly. Representative Bryan Steil (R-WI), one of the sponsors of the STABLE Act, explained<\/a> during the bill\u2019s markup that requiring BSA surveillance of \u201cevery single self-hosted wallet\u201d would \u201cbe a dramatic invasion of personal liberty\u201d and that \u201cAmericans should not be treated the same as financial institutions.\u201d And Senator Bill Hagerty (R-TN), one of the sponsors of the GENIUS Act, said<\/a> during that bill\u2019s markup that \u201c[r]equiring issuers to monitor transactions on various blockchains would be costly and . . . time-consuming.\u201d<\/p>\n

This sentiment about the scope of the BSA obligations imposed must be clearly reflected in the text of both bills to definitively close the door to more expansive future interpretations.<\/p>\n

Despite the characterizations by some skeptical members of Congress, preserving financial privacy is not simply a gift to criminals. Easy government access to financial information poses risks to everyone, particularly those with unpopular political views or anyone otherwise in the minority. Such surveillance is at odds with the rights of free people (including rights recognized<\/a> in the U.S. Constitution) to live without unwarranted governmental monitoring. <\/p>\n

One step to ensuring that those rights are not further infringed is to guarantee that the stablecoin legislation under consideration unequivocally protects from surveillance stablecoin transactions occurring without a financial intermediary.<\/p>\n

<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Both the U.S. Senate and House are considering bills creating a regulatory framework for stablecoins, and all of the usual crypto-skeptic refrains have been sung, including the hymn that crypto is for crime. For instance, Senator Elizabeth Warren (D-MA) warned that the Senate\u2019s GENIUS Act \u201cwill supercharge the financing of terrorism.\u201d During debate on the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"iawp_total_views":0,"footnotes":""},"categories":[2],"tags":[3,4,5],"class_list":["post-23621","post","type-post","status-publish","format-standard","hentry","category-news","tag-crypto","tag-doge","tag-news"],"_links":{"self":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts\/23621","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=23621"}],"version-history":[{"count":0,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts\/23621\/revisions"}],"wp:attachment":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=23621"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=23621"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=23621"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}