Noah Coco '26
Managing Editor
On Tuesday, April 9, Law, Information, Security, and Technology (LIST) hosted practitioners at the forefront of stablecoins for their event titled “Women in the Digital Assets Industry: Different Perspectives on Stablecoins.” The practitioners each discussed their experiences at the financial, legal, and regulatory frontier of this burgeoning technology and industry.
Professor Julia Mahoney, who is currently teaching a Monetary Constitution class, kicked off the discussion with a broad introduction and survey of stablecoins, which are cryptocurrencies whose values are pegged to some external reference point. The most common of these external reference points are other fiat currencies – currencies backed by the government that issued them rather than a physical commodity like gold or silver[1]—but stablecoins may also be pegged to commodities, and others maintain their value through algorithmic formulae.
Pictured: Flavia Naves, Meagan Griffin ’13, Lisa Schroer, & Professor Mahoney
Photo Credit: UVA Law
According to Professor Mahoney, what sets stablecoins apart from other cryptocurrencies is their greater potential to serve as a medium of exchange. As the name suggests, many stablecoins are reliably pegged to their external reference points and effectively eliminate the wild price fluctuations that have so far been endemic to cryptocurrencies more broadly. Price stability is achieved by maintaining sufficient reserve assets backing the stablecoins, which are often overcollateralized to protect against fluctuations in the prices of the underlying reserve assets. As price-stable mediums of exchange, stablecoins can circumvent the “iron grip” of sovereigns by providing an alternative financial infrastructure beyond national financial regulators and private financial intermediaries.
On the other hand, stablecoins do not come without skeptics. Mahoney cited academics and regulators alike who have expressed concern over the adoption of this innovative yet still nascent technology. One common criticism is that stablecoins are recreating the Civil War-era phenomenon of widespread circulation of private bank notes. In this modern context, however, the “banks” issuing the stablecoins are so far unregulated and prone to destabilizing bank runs that could provoke government intervention. Federal regulators like Gary Gensler, Commissioner of the Securities and Exchange Commission, share similar sentiments and have so far taken aggressive stances against the industry.
The remaining practitioners proceeded by reflecting on their own roles amidst the financial innovation and accompanying regulatory uncertainty surrounding stablecoins.
Lisa Schroeer, Senior Director & Analytical Manager, Cross Analytic Practice Expertise Team at S&P Global Ratings, began by discussing these trends from a private ratings perspective. Lisa, a self-proclaimed “unlikely DeFi’er” who started her career at the Federal Reserve before transitioning to her current employer, says, as she sees it, the primary goal of rating agencies is providing transparency and minimizing asymmetric information for financial assets. With respect to stablecoins, she has been assessing the ability of stablecoins to maintain their pegs by examining the assets backing them. Quality of reserve assets, asset liquidity, and overcollateralization are key features she looks at in determining whether stablecoins can reliably keep their pegs. This analysis is difficult when stablecoin issuers keep relatively less transparent records,[2] or when stablecoins are backed by assets of less stable value, like other cryptocurrencies.
Flavia Naves, Commissioner of the Wyoming Stable Coin Commission and Of Counsel at Hathaway & Kunz, LLP, next spoke about stablecoins from the state regulatory perspective. Naves noted that stablecoins are still “wizardry” to regulators, who know very little about the technology and are equipped with an outdated toolset of old laws to regulate the industry. Throughout the history of banking, regulators have constructed banking guardrails and internet guardrails as more transactions and payments began to occur online, but she says that the industry still lacks appropriate “blockchain guardrails” to deal with the newest financial innovations in crypto and stablecoins. Although the correct regulatory response is still debated, she notes that states have been more active in regulating the industry to date than the federal government. Her own Wyoming Stable Coin Commission is a product of recent state legislation establishing the Commission and empowering it to create what would be the United States’ first government-issued stablecoin backed by US dollar reserves.[3]
Megan Griffin ’13, Of Counsel in the Global Fintech & Payments Group at Paul Hastings LLP, further elaborated on state stablecoin regulatory schemes that she has encountered in her practice. She noted that states are the primary regulators for non-banking, non-depository institutions, the category that stablecoin issuers fall into. That regulatory structure complicates the stablecoin industry because the “interlocking web of state banking departments” lacks uniformity in their approach to cryptocurrencies broadly, and stablecoins in particular.
For instance, most regulations of cryptocurrency at the state level derive from money transmitter statutes, which have traditionally applied to the issuance of payment instruments, instruments of prepaid value, and remits between two parties, but that are now being used to regulate cryptocurrency exchanges, even when they do not even touch fiat money. Some states have labeled stablecoins as cryptocurrencies, which under their respective state statutes excuses them from regulations governing underlying asset reserves (implicitly acknowledging that cryptocurrencies somehow hold intrinsic value). Other states label stablecoins as cryptocurrencies, but under their respective statutes they do regulate the underlying reserves. Still other states recognize stablecoins as a store of value, a category which also subjects them to regulations of the underlying reserves. The lack of uniformity makes compliance with state regulations difficult for stablecoin issuers, who often must engage counsel at earlier stages than other technology startups.
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cmz4bx@virginia.edu
[1] https://www.investopedia.com/terms/f/fiatmoney.asp.
[2] Like Tether, one of the most widely used stablecoins.
[3] Castelluccio et al., Wyoming Adopts Stable Token Legislation and Lays the Foundation for a Government-Issued Stable Coin, Mayer Brown (May 5, 2023) https://www.mayerbrown.com/en/insights/publications/2023/05/wyoming-adopts-stable-token-legislation-and-lays-the-foundation-for-a-government-issued-stablecoin.