Circle Responds to a U.S. Treasury Department Request for Comment on the Cause and Benefits of Stablecoin Mass Adoption

On August 8, 2022, Circle responded to a request for comment from the U.S. Department of the Treasury on how to ensure responsible development of digital assets. As part of President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets, Treasury has solicited comments to provide data on the growing implications of digital asset usage and development. Circle is pleased to participate in this ongoing dialogue with public authorities on the future of financial services. 

Circle was founded on the principle that digital currency will make the global economic system more open, inclusive, and efficient for people to send, save, and secure money in every corner of the world. Our response to the Treasury Department demonstrates how people and businesses worldwide are transacting through a system that has the reach, accessibility, and speed of the internet while still conforming to compliance norms, relevant regulations, and standards of trust.

Circle’s comments highlight that: 

• The need to reduce counterparty risk, mitigate against currency volatility, and the expansion of ‘real world’ use cases have all led to the growing adoption of payment stablecoins;
• A strong regulatory framework with clear rules of the road will facilitate mass adoption of stablecoins and other digital assets;
• Public blockchains allow for faster and cheaper payments, advances in privacy and security, and increased competition and interoperability; 
• Broad risks to the market include hacks and bugs, incomplete information about projects or market participants, and regulatory arbitrage; even as improvements to open source review and smart contract auditing, transparent blockchain design and further regulatory harmonization offer a path forward;  
• Digital assets can increase access and reduce costs for the un- and under-banked, while education can help these consumers better understand the opportunities digital assets make available to them.

KEY POINTS AND EXCERPTS 

• The need to reduce counterparty risk, mitigate against currency volatility, and the expansion of ‘real world’ use cases have all led to the growing adoption of payment stablecoins.
   
  • “Stablecoin transactions that support non-balance sheet intermediated financial services on blockchain, such as automated market making and overcollateralized lending, greatly reduce counterparty risks. Placing funds into a payment stablecoin provides individuals and companies with the opportunity to use dollars as a store of value without having to worry about losses from adverse currency fluctuations, and USDC serves as a digital safe haven currency during periods of market distress.”
  • “Tech-savvy banks, fintech companies, and financial application providers are adding payment stablecoins as a new internet-native rail for critical business use cases and seizing growing opportunities in new market segments. The three key benefits of payment stablecoins for financial services companies are facilitating secure, fast, and low-cost global payments; providing powerful new solutions to business customers; and, accessing new markets and industry segments.”
• A strong regulatory framework with clear rules of the road will facilitate mass adoption of stablecoins and other digital assets.
  
  
  • “As part of prudential regulation, the U.S. government should incentivize the development of open, internet-scale, constantly upgradable financial markets infrastructure; set standards that facilitate interoperability and universal exchange of payment stablecoins; and provide qualified payment stablecoin issuers access to a master account at the Fed, the Reverse Repurchase Facility, and Fed liquidity facilities. Finally, given the challenges even in recent economic recovery efforts, the U.S. government should consider a pilot program for the use of payment stablecoins in faster administration of public sector payments programs with an enhanced focus on financial inclusion.”
  • “The United States has a tremendous opportunity to serve as a standard bearer and to work with other countries to harmonize rules that meet its own high bar. Clear, consistent rules will enhance the reach of dollar-denominated payment stablecoins and, accordingly, the U.S. dollar. The Department of the Treasury should work with other departments and agencies in the U.S. government to establish regulatory clarity internationally so that digital dollars can have the maximum international reach.”
• Public blockchains allow for faster and cheaper payments, advances in privacy and security, and increased competition and interoperability. 
  
  
  • “Even as the technology continues to rapidly involve, increases in transaction speed and finality represent a significant opportunity for all economic participants...The settlement time and transaction cost of most public blockchains can provide businesses and investors with reduced counterparty risk and greater balance sheet predictability, while enabling consumers with faster access to funds, with particular benefit to those who may otherwise access high-cost alternatives, such as payday loans.”

• Broad risks to the market include hacks and bugs, incomplete information about projects or market participants, and regulatory arbitrage; even as improvements to open source review and smart contract auditing, transparent blockchain design and further regulatory harmonization offer a path forward. 
  
  
  • “While best practices have developed, such as open source review, commercial smart contract audit firms, and redundant trust systems (i.e., multi-signature asset custody), it is not uncommon for technologically novel apps to have bugs or be hacked…Additionally, because the regulatory status of many digital assets may not be fully settled, users may not receive the same mandated disclosures as they might expect when engaging with analogous products.”
  • “The digital assets space may be more prone to international regulatory arbitrage than other industries due to the inherently borderless nature of digital assets as well as the nascent stages of regulatory oversight…Circle believes that the U.S. should lead the harmonization of international digital assets regulation in order to unlock American innovation, just as it has with countless nascent industries in the past.”
  • “Circle believes that, in some instances, new products and services will mitigate risks from the accidental loss of funds by users, scams and fraud, business insolvencies and compromised privacy, with market developments continuing this risk reduction. In other instances, the risk is equivalent in the digital asset ecosystem to traditional financial networks. Ultimately, though, financial regulators and Congress must work with industry to implement effective regulatory regimes to protect digital asset users.”
  • “Consumer protection authorities should use crypto native solutions to fight scams and fraud. Similarly, consumer protection authorities should leverage public community investigations to identify and fight scams. Digital assets that are natively digital, open, and auditable empower anyone in the world to investigate suspicious activity and publish findings for open source review.”

• Digital assets can increase access and reduce costs for the un- and under-banked, while education can help these consumers better understand the opportunities digital assets make available to them.
  
  
  • “In 2022, every American should have access to digital financial services that allow them to send, secure, and receive value smoothly and inexpensively. The unfortunate reality, however, is that the U.S. banking system has failed to provide these basic services to millions of Americans. The underserved also tend to be low income and/or people of color. Digital assets are advantageous because custody is unbundled from other services, they are natively digital, and such services are not typically provided by banks.”
  • “Circle believes that not only can ‘unbanked’ and ‘underbanked’ Americans still access cheap and safe digital financial services through non-bank means, but that these populations are actually more likely to adequately fill their needs through non-bank financial services, including those built on digital assets.”
  • “As Americans begin to take advantage of new digital asset products and services, it is imperative for private firms and public resources to educate consumers about how to safely and prudently use these new technologies…. But financial education is not a panacea. It is also imperative that government bodies invest in their own education, building the staff expertise and technical capabilities to regulate digital assets.”