This is something that I talked about in a couple videos.
When it comes to regulation, Wall Street institutions think of that is nothing more than guidelines. There is no sector that ignores them more than the banking industry.
Even when they remain within the bounds, they are willing to push the limits. I stated that, before the bill even passed, the banks (and other participants) figured out ways around what the legislators were trying to do.
With the stablecoin framework, policy makers were against yield being paid to the holders. The law specifically states that yield bearing stablecoins to the general public are illegal.
So what is a company to do?
We will take a look at this.
Coinbase already has an answer.
The problem with the legislation is that it specifically targets stablecoin issuers. They are the ones barred from providing yield to token holders. This does not include 3rd parties.
It is the stance that Coinbase and Brian Armstrong are taking. The company is paying rewards on those who stake USDC on its platform.
Of course, as Armstrong points out, Coinbase is not the issuer of USDC.
Brian Armstrong, CEO of the exchange, has defended the legality of this program, highlighting that Coinbase is not the issuer of USDC and that they did not pay yield, but offer rewards to their “very competitive” customers.
And there you have it. Take a third party that is not the issuer of the stablecoin and change the terminology from yield to "rewards" and it is legal. We will see how this holds up in court since it will likely be challenged.
This opens the doors for others.
This means that any company would be allowed to offer yield for in-house designed stablecoins, having to rely on a third-party institution as an issuer of their instrument.
Here we are seeing the law of unintended consequences when it comes to legislation. There are always areas where the law stretches into that was not anticipated. We also see formation of other activities around "loopholes".
PayPal is moving ahead, diving deeper into the crypto industry.
Like Coinbase it is pushing the envelop when it comes to regulation. The difference if PYUSD is issued by PayPal, putting it potentially in the crosshairs of the regulators.
This quarter, we added the ability to earn rewards for our stablecoin on PayPal and Venmo and announced the expanded availability of PYUSD on Stellar and Arbitrum blockchains.
Kazanins stated that technically, the issuer for PYUSD was Paxos, enabling Paypal to engage in delivering “rewards” to its customers through earn programs.
Again, this is likely to be challenged at some point and we have no idea how the courts will rule. Nevertheless, these companies are diving deep into this, less than a month after the bill was signed into law.
This is Banker 101. No matter what the regulation, simply keep pushing things until a fine occurs. Of course, the risk/reward models are already being run, to see how much they will be in the green on the deal.
When pays pay multi-billion fines, they are able to do so because they made more than that by ignoring whatever regulation they were breaking.
It seems the crypto companies are adopting the same approach.
