The USDF Consortium applauds the thoughtful approach that the Department of the Treasury (“Treasury”) has taken on digital assets and appreciates the opportunity to comment on this timely request. We write to emphasize that although it is important to consider how to bring non-bank digital asset providers under a stronger regulatory framework, regulators must also work to create a clear credible path for regulated entities like banks to offer digital asset services, in particular tokenized deposits. Currently, such a path does not exist, and failure to create one in the near term will keep many of the benefits of digital asset technology from being fully realized.
Distributed ledger technology holds tremendous promise to improve financial services, offering faster, cheaper services that can help promote financial inclusion, drive economic growth, and support the role of the U.S. Dollar as the global reserve currency. We can only realize these benefits when this innovation is delivered responsibly and regulatory guidelines are clear, certain, and consistently applied. As the regulatory framework evolves, it is critical to extend existing protections while ensuring we maintain the numerous benefits that our banking system provides today.
The bank regulatory framework provides a tested regulatory structure for digital money. As a group of insured depository institutions, USDF’s members believe that banks are well-positioned to deliver customers the benefits of blockchain technology from trusted partners.
To date, most blockchain innovation has occurred outside of this regulatory structure in novel cryptocurrency markets. These markets have provided testing grounds that have proven the opportunities blockchain technology can deliver. However, the volatile nature of these assets and the inconsistent regulation in these markets has limited the real-world impact of this technology and resulted in unacceptable risk. Despite the numerous innovations in decentralized lending (de-fi), you can’t typically use a de-fi loan to fund the purchase of real-world goods or services.
As banks respond to growing customer demand for blockchain technology and incorporate them into traditional banking, we can promote access to safe affordable financial services while maintaining critical protections. Blockchain can create an open platform that can power further innovation. With blockchain technology we can:
- facilitate faster, cheaper payments ensuring consumers and companies of all sizes have immediate access to their money.
- add transparency and efficiency that lowers the cost of credit and improves access for creditworthy borrowers,
- promote financial inclusion, by lowering the costs to serve new markets and making it easier for banks to meet the needs of underserved communities, and
- support the role of the U.S. Dollar internationally and ensure that our economy remains the most dynamic in the world.
We believe that the best way to leverage blockchain technology is to extend the existing banking model into this tokenized environment. Today, most consumers and companies hold their money as a digital bank deposit. By creating a tokenized representation of an existing bank deposit, we can bring trusted bank money onto chain.
USDF digital markers represent deposits of an individual depositor at U.S. insured depository institutions. USDF is able to address the consumer protection, regulatory, concerns of non-bank issued stablecoins and offers a safer option for transacting on blockchain.
The bank regulatory structure is designed to manage the risks associated with offering digital representations of money. Banks are subject to strong regulation and proactive supervision that ensures deposits are safe and that consumers receive the appropriate protections. This is why no depositor in an FDIC-insured institution has ever lost a penny of FDIC-insured funds since the FDIC’s inception in 1933.
If policymakers want to realize the benefits of blockchain technology while maintaining critical protections, they should look to the bank regulatory framework. Bank deposits are backed by robust capital and are subject to a regulatory regime that ensures liquidity and solvency. For banks, the implementation of blockchain technology does not fundamentally change the nature of banking or how regulation controls for the risks associated with it.
To date, however, U.S. regulators have not created a path forward for banks to offer digital asset services. Although banks have clear legal authority, they must first ask for permission from regulators to commence digital asset activities. Moreover, to date, there is not a clear set of regulatory expectations for banks seeking to provide digital asset services.
Failure to create such a clear set of regulatory expectations for banks will push market participants farther from regulation, thus exacerbating the run risk, illicit finance risk, and cyber risks present in the market today. This risks leaving consumers, investors, and businesses exposed. The USDF Consortium stands ready to assist policymakers as they work to ensure blockchain innovation is delivered responsibly.