Was This the Final Hurdle for the U.S. Clarity Act? In last week’s Firi Weekly, we discussed how the U.S. Clarity Act did not pass in April. We also argued that if it was not passed before the summer, it would likely become harder to pass this year because of the U.S. midterm elections later in the year.
The bill is expected to create clearer regulation for the crypto industry in the United States. Among other things, it could strengthen protections for customers of crypto companies, provide crypto businesses with better operating conditions, and make it easier for traditional financial institutions to engage more deeply with crypto.
The legislation has been delayed several times, mainly because of disagreement over whether stablecoins should be allowed to pay interest or other rewards. U.S. banks reportedly do not want the Clarity Act to allow interest or similar rewards on stablecoins, as they fear customers could move money out of bank deposits and into stablecoins. Crypto firms, meanwhile, want the option to offer rewards on stablecoin holdings.
On Friday last week, banks on one side and crypto companies on the other finally reached an agreement on this specific issue. Under the compromise, paying interest on stablecoins will be prohibited if it closely resembles a bank deposit. This would apply, for example, if a customer simply holds the stablecoin in an account in the same way they would normally hold a bank balance.
Crypto companies will, however, be allowed to pay rewards if those rewards are linked to activity, such as trading, payments, or similar use cases. At this stage, there is still considerable uncertainty around which customer activities will qualify for rewards. The U.S. Treasury and the Commodity Futures Trading Commission (CFTC) will be responsible for defining those details.
The positive takeaway is that, with this hurdle now addressed, the Clarity Act appears much more likely to pass this year, potentially even before the summer. That would likely be positive for the crypto industry.
Banking Circle Introduces Stablecoin Settlement Services: Banking Circle, the Danish-founded payment service provider, received a Markets in Crypto-Assets (MiCA) license in Luxembourg in mid-April. MiCA is the European Union’s regulatory framework for crypto-related companies.
Following its new MiCA license, Banking Circle announced last week that it is launching stablecoin settlement services. In practice, this means the company will support settlement between traditional currencies and stablecoins, including USDC, USDG, and EURI, for clients that include more than 700 regulated financial institutions.
Banking Circle is another firm doubling down on stablecoins, following a 50% increase in the total stablecoin supply last year. The move also comes after Meta, the parent company of Facebook and Instagram, announced last week that creators can now be paid in USDC.
Brazil Bans Financial Firms from Stablecoin Settlement: While stablecoin adoption continues to grow, crypto development is rarely one-directional. On April 30, the Brazilian Central Bank published updated rules for electronic foreign exchange (eFX) providers, banning them from using cryptocurrencies, including stablecoins, to settle transactions to and from foreign accounts. For those activities, providers must use traditional settlement methods. The new rule takes effect on October 1 this year.
Several Brazilian challenger banks, including Nomad and Braza Bank, had otherwise used stablecoins in this way. The rule does not prohibit end users from owning or using crypto, including stablecoins. It applies only to regulated financial institutions.
This is clearly a step in the wrong direction for stablecoin settlement between financial firms globally. That said, one has to wonder whether the Brazilian Central Bank will eventually need to revisit this position sooner rather than later.
