Consensys urges amendment to stablecoin regulation... Criticizes 'industry paralysis if left as is'

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Blockchain software company Consensys has called for amendments to the U.S. Federal Deposit Insurance Corporation (FDIC)'s proposed rules ahead of the implementation of the GENIUS stablecoin regulation. Consensys raised concerns that key provisions, such as restrictions on issuer profit distribution, regulation of third-party distributors, decentralized finance accessibility for non-custodial wallets, and sanction methods for reserve, redemption, and capital shortfalls, could exceed the legislative intent.

According to Coingape, Consensys submitted comprehensive comments on the FDIC's stablecoin proposed rule and expressed concerns about the interpretation and enforcement of new regulations under the GENIUS bill. Consensys had previously submitted comments to the U.S. Office of the Comptroller of the Currency (OCC) on May 1st and also provided separate comments to the U.S. Department of the Treasury regarding state-by-state regulatory frameworks. Consensys stated that its three submissions reflect a coordinated position on the federal regulatory framework that will govern payment stablecoins for the next decade.

Consensys called for amendments on four main issues. Firstly, provisions related to restrictions on profit distribution and third-party distributors were highlighted as core problems. Consensys argued that the structure of the FDIC's proposed rule could extend beyond prohibiting compensation to stablecoin holders to encompass general commercial distribution agreements. The company stated, “The proposed presumptive rule captures general commercial distribution structures, including typical brand licensing agreements, exceeding the scope of the law.” Consensys explained that while expanding the prohibition to external parties was discussed during the legislative process, that amendment was ultimately excluded.

Accessibility to decentralized finance through non-custodial wallets also emerged as a key issue. Consensys argued that the GENIUS bill maintains protection for self-custody tools and that wallet providers should not be considered intermediaries when users independently deposit stablecoins into decentralized finance protocols. Consensys stated that if users directly deposit stablecoins into decentralized finance protocols to earn protocol-specific returns, the wallet interface is not distributing profits on behalf of the issuer.

Consensys also demanded that supervisory discretion be maintained over automatic sanctions for matters of reserve, redemption, and capital shortfalls. The company pointed out that mandatory measures could cause sudden shocks, adversely affecting stablecoin holders. The implication is that if regulatory enforcement is carried out mechanically, it could lead to a discontinuous trend where market participants collectively engage in risk aversion.

Technical terminology and the expression of cross-chain stablecoins were also included in the amendment requests. Consensys emphasized the need for functional and technology-neutral definitions for distributed ledgers and smart contracts. Coingape reported that, as a separate regulatory development, a U.S. cryptocurrency market structure bill is moving towards a full Senate vote.

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