One of the most critical sections of the Lummis/Gillibrand bill discusses the plan for enhanced Consumer Protections within Digital Assets. The recent macro downdraft has brought turmoil to Stablecoins and Staking providers such as Celsius. We are here to discuss the key pieces of the proposed Consumer Protections.
Section 501 requires digital asset providers to clearly disclose information in customer agreements related to their product, including asset treatment in bankruptcy, risks of loss, applicable fees, redemption and more. Clearly, this is a hot button issue on the back of the Celsius story. Celsius would tweet the “advantage” of their staking yield over a TradFi bank. However, deep in their client documentation the company mentioned your assets could be claimed by “bank”.
Please always read the fine print in any and all documents. If possible consult with an attorney.
The second piece of Section 501 requires providers of digital asset services to provide customers with information regarding the source code used for each digital asset and the legal treatment of each asset, including securities and commodities laws. Source code is key to understanding the “inner workings of a software project”, in this case a cryptocurrency.
Sec. 504 requires higher standards of disclosure from certain providers of digital assets and allocates enforcement authority. Sec. 505 Codifies a person’s right to keep and control the digital assets they own. Disclosures would include a description of the permissible transactions that may be undertaken with customer digital assets; whether customer digital assets are segregated from other customer assets and the manner of segregation; how customer assets would be treated in a bankruptcy or insolvency scenario and the risks of loss.
With the collapse of Luna, the question remains about other digital assets such as Tether and USDD. How will consumers be protected under this proposed bill? Section 601, permits depository institutions to issue payment stablecoins and creates requirements for issuers of a payment stablecoin including: maintaining high-quality liquid assets valued at 100% of the face value of all outstanding payment stablecoins, disclosing the assets backing the stablecoin and their value; and having the ability to redeem all outstanding stablecoins at par in legal tender. Financial institutions would be required to provide monthly public disclosures, filed with the appropriate banking regulators detailing the number of payment stablecoins outstanding and the details regarding the assets backing the payment stablecoins and their value.
The RFIA continues to be debated on Capital Hill, and FinTwit. The first steps had to be taken to build a framework to be revised and improved upon. This is progress, with bi-partisan support, to protect consumers as they enter into Digital Assets. I believe Senator Gillibrand lead staffer, Evan Lukaske, said it best “the upheaval in the cryptocurrency market demonstrates why this bill is necessary,” because it adds some measure of regulation to an industry with no consumer protection or accountability.