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Implications and Comparison of Proposed Legislation to Regulate Digital Assets

By Michael Pflueger


After the collapse of the Bahamas-based cryptocurrency exchange, FTX, Congress has been under immense public pressure to pass legislation that regulates the digital asset industries.[1] As of right now, there is no specific agency designated to regulate digital assets. This led several departments to supervise the digital asset industries. With that in mind, we are going to analyze the rules and implications of two legislative proposals that are currently under consideration by the Senate. The Lummis-Gillibrand Responsible Financial Innovation Act (RFIA) was introduced in the Senate on June 7, 2022 by Senator Cynthia Lummis and Senator Gillibrand.[2] The purpose of the proposal is to create the first regulatory framework for digital assets and if it were passed, the legislation would apply to any transaction entered into after December 31, 2022.[3]Additionally, the Stablecoin Transparency of Reserves and Uniform Safe Transactions Act (TRUST Act) was introduced by Senator Pat Toomey on December 21, 2022.[4] Senator Toomey introduced the new legislation for the main purpose of providing “a regulatory framework and consumer protections for the issuance of payment stablecoins”.[5] We are going to take a closer look at both of these legislative proposals and compare the effects that they would have on the digital asset industries, specifically payment stablecoins. 

Defining the Different Kinds of Digital Assets

One of the key components of both legislative proposals is their section that provides a detailed definition of payment stablecoins, which would be a strong step towards clarifying the uncertainty around this type of digital asset. The RFIA explicitly states that payment stablecoins are not securities or commodities. The RFIA also adds payment stablecoins to the list of identified banking products under the Gramm-Leach-Bliley Act.[6] Furthermore, the RFIA clarifies the distinction between digital assets, other than payment stablecoins, that are securities or commodities.[7] Similarly, the TRUST Act clarifies that payment stablecoins are not securities as long as they do not collect interest.[8] However, the TRUST Act does not categorize payment stablecoins as a “banking product.”[9] The TRUST Act also makes it explicit that payment stablecoin issuers are not investment companies nor investment advisers.[10] Essentially, these clarifications remove payment stablecoins and their issuers from the SEC’s jurisdiction.

Intermediaries Permitted to Issue Stablecoins

            In the current digital asset space, it is unclear which entities are permitted to issue stablecoins. Both the RFIA and the TRUST Act create the option for Insured Depository Institutions (IDIs) to create a separate affiliate for the primary purpose of issuing stablecoin.[11] Furthermore, both proposals permit states to authorize entities as payment stablecoin issuers, if they still meet the federal requirements that the proposals create.[12] Both also give the Office of the Comptroller of the Currency (OCC) the authority to grant a new federal license to an entity for the special purpose of exclusively issuing payment stablecoin.[13]The RFIA permits the OCC to charter a “new national trust company” for the exclusive purpose of issuing a payment stablecoin; the TRUST Act permits the OCC to grant an entity that meets certain standards a “national limited payment stablecoin issuer license.”[14] Both new entities would be restricted from engaging in maturity transformation and consumer lending. However, the new entities would presumably benefit from less stringent restrictions than IDIs.[15] A key difference between the proposals is that a licensed entity under the TRUST Act will be subject to the supervision of a newly established OCC authority while the RIFA does not create a new authority within the OCC.[16]

Reserve Requirements for Stablecoin Issuers

            At the moment, there are no reserve requirements for issuers of stablecoins. Both legislative proposals create new federal reserve requirements for entities dealing exclusively in the issuance of payment stablecoins. A stablecoin issuer is required to maintain, in its reserves, assets with a market value of at least 100% of the face value of their outstanding payment stablecoins.[17] Additionally, the reserved assets have to be high-quality liquid assets such as cash or cash equivalent.[18] The purposes of the reserve requirement is to prevent runs on the stablecoin issuers and to ensure that stablecoin holders can redeem their stablecoin for an equivalent dollar value if such a run would occur.[19] The aspects discussed in this section are essentially identical for both proposals–both leave out any requirement for issuers to have federal deposit insurance for their outstanding stablecoin.[20] Regardless, the requirement of adequate reserves under either proposal should bring some degree of stability to a cryptocurrency market that is currently volatile and susceptible to corporate fraud.[21]

Regulatory Jurisdiction Over Digital Assets

            Another ambiguity about the digital asset market is regulatory jurisdiction. It is unclear which federal agency is supposed to be regulating each different category of digital assets; however, both proposals make some attempt to clear this up. Under the RFIA, the OCC would have authority to set capital and liquidity requirements for the new national trust companies. It would be responsible for developing recovery and restitution plans for a trust company that is in distress and tipping towards insolvency.[22] The RFIA also grants exclusive jurisdiction over “all fungible digital assets which are not securities” to the CFTC.[23] This would clarify the recent confusion between the CFTC and the SEC in determining where their jurisdictional boundaries start and end. The RFIA also directs the Federal banking agencies to establish rules regarding the management, operation, compliance, and information technology risk management for third-party entities that are involved in a payment stablecoin arrangement (e.g. custodial wallet providers).[24]

The TRUST Act would grant the newly created OCC regulator the authority to set capital, liquidity, and other requirements for the entities that are granted the new issuer license.[25] Other than this, the TRUST Act is more reserved in its designation of authority. It clarifies that its provisions do not apply or affect non-payment stablecoins, such as those backed by commodities, leaving the regulation of these digital assets uncertain.[26] The TRUST Act’s only other jurisdictional stance is the removal of payment stablecoins that do not gain interest from the SEC’s jurisdiction.[27] That being said, neither proposal creates a single regulatory framework that applies to all payment stablecoin issuers other than the requirements and restrictions that they provide. This means that regulation of these entities would still be unclear and could be different for different types of issuers.[28]

Consumer Privacy & Protection

            The RFIA also provides that stablecoin holders have a priority claim over all other claims on a stablecoin issuer that is insolvent or near insolvency. This includes all forms of stablecoin issuers, not just the new national trust entity. The TRUST Act provides for a very similar rule. If an issuer becomes insolvent, the payment stablecoin holders have priority claim over other claimants.[29] Simply put, under both proposals, the payment stablecoin holders get paid back first if an issuer is insolvent and files bankruptcy. 

Furthermore, both proposals require a payment stablecoin issuer to continuously disclose to the public the value and form of each asset that makes up its reserves. The TRUST Act adds an additional layer of consumer protection by requiring issuers to publicly disclose quarterly attestation and audit results from a registered public accounting firm.[30] Public disclosure has kept financial institutions and their management in check in the past. At the moment, stablecoin issuers do not have any disclosure requirements.

            Finally, both proposals provide that the privacy and data requirements in Title V of the Gramm-Leach-Bliley Act will apply to payment stablecoin issuers.[31] The issuers would also be subject to state privacy and data security requirements.[32]The TRUST Act also adds some additional data privacy protections for consumers that the RFIA does not provide. The TRUST Act declares that private transactions that do not involve an intermediary will not have to be reported to the Treasury unless it is voluntarily provided or required by a court.[33] This means that the Bank Secrecy Act (BSA) reporting requirements will not apply to private transactions involving payment stablecoins.[34] The BSA rule that the public is likely most familiar with is the requirement that financial institutions file reports of cash transactions exceeding $10,000.[35] This wouldn’t be required in the case for private transactions involving payment stablecoins under the TRUST Act.


            Even if either proposal is passed into law, we are still a long way from having thorough and complete regulation of the digital asset markets. However, these proposals, among others currently being contemplated by Congress, are giving the players in these markets some clarity on the rules that they should be playing by. Beginning with the establishment of regulatory rules for stablecoins is naturally the right first step. By creating some sort of regulatory framework for the issuance of payment stablecoins, these proposals would help issuers provide a reliable cryptocurrency to the public that is relatively the same as having a digital dollar.[36] This, at least in principle, would make the value of payment stablecoins much more stable. It would also make stablecoin payments much more practicable as more businesses would be willing to accept them.[37] The marketplace always moves faster than the regulators and legislators, especially in the digital space, but at least we are finally making some progress. 

[1] Ana Perera, US lawmakers under pressure following FTX collapse: Report, Cointelegraph (Dec. 31, 2022),

[2] S.4356 – Lummis-Gillibrand Responsible Financial Innovation Act, Cong. (Nov. 15, 2022),

[3] Id.

[4] Press Release, Toomey Introduces Legislation to Guide Future Stablecoin Regulation, Senate Comm. on Banking, Hous. and Urb. Aff., (Dec. 21, 2022),,have%20unchecked%20power%20over%20stablecoins

[5]S.5340 – Stablecoin TRUST Act of 2022, Cong. (Dec. 21, 2022),

[6] Pending Stablecoin Legislation, American Bar Assoc. (Oct. 10, 2022),

[7] Press Release, Lummis, Gillibrand Introduce Landmark Legislation to Create Regulatory Framework for Digital Assets, Kirsten Gillibrand (June 7, 2022),

[8] Id.

[9] American Bar Association, supra note 6

[10] The Stablecoin Trust Act Section-by-Section, Senate Comm. on Banking, Hous. and Urb. Aff., (Dec. 21, 2022),

[11] American Bar Association, supra note 6 

[12] American Bar Association, supra note 6

[13] American Bar Association, supra note 6

[14] American Bar Association, supra note 6

[15] David Portilla & Danjie Fang, An Overview of the Stablecoin Policy Debate, American Bar Assoc. (Oct. 10, 2022),

[16] American Bar Association, supra note 6

[17] American Bar Association, supra note 6

[18] American Bar Association, supra note 6

[19] American Bar Association, supra note 6

[20] American Bar Association, supra note 6

[21] Paul Kupiec, The Stablecoin Trust Act is a good start but falls short in key areas, The Hill (Apr. 27, 2022, 3:00 PM),

[22] American Bar Association, supra note 6

[23] Congress, supra note 2

[24] American Bar Association, supra note 6

[25] The Hill, supra note 20 

[26] Senate Committee on Banking, supra note 11

[27] Senate Committee on Banking, supra note 11

[28] The Hill, supra note 20

[29] Senate Committee on Banking, supra note 11

[30] American Bar Association, supra note 6

[31] American Bar Association, supra note 6

[32] Rene McNulty, Ethan Ostroff & Mary Zinser, Legislation Introduced that Would Establish Federal Regulatory Framework for Payment Stablecoins, JDSUPRA (Jan.13, 2023),

[33] Id.

[34] Senate Committee on Banking, supra note 11

[35] Bank Secrecy Act (BSA), Office of the Comptroller of the Currency (last visited Mar. 19, 2023),

[36] Megan DeMatteo, What’s the Point of Stablecoins? The Reasons, Risks and Types to Know, CoinDesk (Mar. 22, 2023 5:12 PM),

[37] Rachel McIntosh, Stablecoins Explained: Why Stablecoins Exist, and How You Can Use Them in Your Portfolio,Coinmotion (July 4, 2022, 11:30 AM),