Beanie babies, stablecoins and Congress

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Here are an interesting few bits of crypto reading for this August Monday. . . 

First is this passage from a recent Coinbase legal filing, which asks a New York judge to dismiss the Securities and Exchange Commission’s lawsuit claiming the platform has been illegally listing securities since “at least 2019”:

On Coinbase’s secondary-market exchange and through Prime, there is no investment of money coupled with a promise of future delivery of anything. There is an asset sale. That’s it. It is akin to the sale of a parcel of land, the value of which may fluctuate after the sale. Or a condo in a new development. Or an American Girl Doll, or a Beanie Baby, or a baseball card.

Besides the entertaining adoption of the Beanie Baby comparison, the crypto sceptics’ favourite, the motion is notable because it cites another judge’s decision about Ripple, which is a bit of a mess. Judge Analisa Torres found that Ripple’s tokens were securities when they were issued, but not when they were traded on secondary markets, which is kind of bizarre, as many have observed. Judge Jed Rakoff did not agree, to put it mildly, in a more recent ruling on Terraform Labs. Anyway!

Here is today’s announcement that PayPal will start offering company scrip a fully reserved stablecoin:

PayPal USD is issued by Paxos Trust Company, a fully licensed limited purpose trust company subject to regulatory oversight by the New York State Department of Financial Services. In June 2022, PayPal was issued a BitLicense by NYDFS after previously obtaining a conditional BitLicense.

Reserves for PayPal USD are fully backed by U.S. dollar deposits, U.S. Treasuries and similar cash equivalents, and PayPal USD can be bought or sold through PayPal at a rate of $1.00 per PayPal USD.

Beginning in September 2023, Paxos will publish a public monthly Reserve Report for PayPal USD that outlines the instruments composing the reserves. Paxos will also publish a public third-party attestation of the value of PayPal USD reserve assets. The attestation will be issued by an independent third-party accounting firm and conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA). 

Stablecoins operate very much like money-market funds. But they are apparently regulated only by New York’s Department of Financial Services, and not the SEC, even though the SEC regulates money-market funds.

Also very likely related: Here is a bill to regulate stablecoins, which exited a US House Financial Services committee last month. It is the first of its kind to make it to the House floor, Reuters reported.

The Congressional bill summary reads: “Under the bill, permitted payment stablecoins are not considered securities under securities law.”

Well then! It’s shaping up to be a fun second half of the year in finreg-land.