According to landmark stablecoin legislation, not all bank clients are created equal.
US banks could pick up the tab should a stablecoin issuer go bust if House lawmakers pass the Senate’s Genius Act without changing key provisions, experts say.
Those provisions favour stablecoin holders over other creditors in the event a stablecoin issuer files for bankruptcy, Georgetown Law professor Adam Levitin recently wrote on his personal blog.
As major US banks consider launching their own stablecoins or holding the reserves for others’ stablecoins, the Genius Act raises questions over how best to protect stablecoin holders from the crises that have plagued them in the past.
The bill “is subsidising stablecoin issuance on the back of bank deposits,” Levitin writes.
While Levitin cast the bill’s insolvency provisions as “an absolute mess,” crypto executives who spoke to DL News said Senate lawmakers faced difficult decisions in regulating the $255 billion stablecoin market.
“Under the latest text, stablecoin holders would have priority claims to the reserves backing the stablecoins,” John McCarthy, general counsel of Morpho Labs, said.