Bob Brewer Is Joined By DC Counsel Jim Holbein To Discuss The Genius Act And Stablecoin

BLG VP Bob Brewer is joined by DC Counsel Jim Holbein to discuss the new book From Genius Act to State Innovation The US Stablecoin Framework​

Transcript

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Welcome [music] to hot topics in international trade brought to you by Bromeer Law Group and Bramala Consulting

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Group. Hi, this is Bob Brewer with Bramiller Law Group and Bramal Consulting Group. Welcome to the podcast. With me once again, and it's

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been a little while, Jim Holine, our counsel out in Washington, DC. How you doing, Jim? I'm doing great, thanks Bob.

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How are you? Yeah, I mean as I'm good as as many of you have I I know he's basically my web 3.0 0 guy guru out

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there who's been I tell you the blockchain crypto all of these things that he's been writing about for the past what five six years Jim years for

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broader is that right five years five years and we're pro is that what it was yeah more than 20

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okay and some thought leadership awards in there along the way well I want to get down to the nitty-gritty on what you've been writing about recently because this is interesting this genius

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act I mean tell us about this genius act right Well, the Genius Act was passed last

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year in July and it's due to enter into force in uh 2027 in January 2027.

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It is an act that um I'm not going to give you the whole acronym. You can that's in the materials we've been sending around in my latest article. But

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what it's about is it's making uh the regula the legal basis for regulation of

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payment stable coins and it particularly tells the federal agencies and the state agencies um what they can do how they have to

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form their regulations to ensure that when we integrate the use of payment stable coins into the

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existing financial framework that they're going to have the same constraints. They're going to have the same level of consumer protection.

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They're going to have the same level of, you know, avoiding fraud and scams and all the stuff that crypto's constantly

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being blamed with. Gary G, thank Gary Gensler at the SEC for that. And um yeah, they're um

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it it's making it uh possible to transact in the system with payment stable coins. Now, uh that I think is

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the basic thrust of it. and all of the agencies. There are multiple agencies that are involved in regulation of the

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financial system. After all, the office of the controller of the currency, the Fed, the um Treasury Department, uh the

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SEC and the CFTC have peripheral roles, the uh Federal Deposit Insurance Corporation, the National Credit Union

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Administration, and others as well at the state level. many many financial regulatory agencies at the state level.

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So all of them have mandates or um requirements that have been placed upon them by this law to come up with

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regulations so that permitted payment stable coin issuers, companies that issue these tokens that will be traded

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um are um are properly regulated and don't bring harm to the s the financial system, but rather make it easier to

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transact and easier to do business with this form of digital money. So that's in a in a nutshell that's what the Genius Act is.

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Well, for those for those who aren't are unfamiliar with it, what are stable coins? I mean, why are they important? Okay, stable coins are um tokens.

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They're type of cryptocurrency. They're but they're based on not the trading value among you know platforms and

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exchanges and all the wild west show of cryptocurrency. What they are is tokens that are uh set at the stabilized at the

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value mostly of the US dollar. There are two big ones internationally right now, Tether and Circle. Uh Circle has a lot

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of the uh regulatory requirements that are being built into regulate payment permitted payment stable coin issuers.

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They already do a lot of that and they issue financial reports and they're a bit more um compliant in advance with the Genius Act requirements than Tether.

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Tether is an internationally uh known one. It's the biggest stable coin. It said it you dollar par value, but um

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it's going to have a harder time becoming compliant under this law with the rules here in the US. But they've known about it since last July and

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they're working very hard. I know both of those companies, both of those, you know, stable coins are working hard to be the coin of choice, if you will, once

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the law takes effect. And then Gotcha. Well, how how's the federal government adapting to this payment? You know, coins. You know what it's going to

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require is the the reserve requirements for stable coins are very short-term, very liquid instruments that are, you

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know, treasury deals, ca treasury bills, uh 93 days or less maturity, uh cash, other types of cash equivalent things.

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Okay. And um the the the federal they are adapting to the federal government.

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The federal government is issuing lots of notices of proposed rulemaking which came out in the spring this year from

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all those agencies I mentioned. Almost all of them have issued something uh requesting the public to tell them what

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do you want what you know what do you want us to do to regulate under this law? What rules are going to protect

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your cits and small banks and other you know types of financial institutions?

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what's going to make it the most seamless integration and harm you guys the least. And that's kind of the focus

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that they're bringing to the whole thing. How can we bring these things into the system without causing any kind of harm to the existing entities that

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are going to because we're adding new players, these permitted pay st pay payment stable coin issuers, but also we're adding stable coin users and

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stable and Visa and Mastercard and all the familiar names about processing payments are going to use these stable coins now going forward and it will

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enable them to process a different form of digital payments than they already do. And so the the the regulatory

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agencies are getting ready to issue their interim regulations before the end of the year. And I [clears throat] would expect October through December, we're

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going to see a huge like six to eight major sets of regulations come out from all the agencies. Then in [laughter] the

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early part of next year, we'll spend a fair amount of time during the implementation phase reconciling all those various regulations so that they

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don't create regulatory arbitrage, create advantages at one agency over another or one type of payment stable

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coin over another. All that stuff's going to kind of get sorted out over the next year. And by this time 2027 payment

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stable coins are in use and integrated and they have an advantage. Can I talk about the advantage? The payment uh

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rails that will be used there is a payment um processing protocol uh and

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HTTP. You see it on all the stuff you do with the internet. Okay. So there is an internet protocol X42 that's been in

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place since the beginning of the internet since it was the worldwide web early when you know that it became the internet. Uh the HTTP protocols are what

7:48 7 minutes, 48 seconds allowed it to become the internet. In any case it's for payments and what it permits is a very simple process for if

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uh an say an AI agent because this is where I think the applicability will be quite a lot. AI agents need to request

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an API or pay for it or request a document and need to make a payment for it or something of that ilk, they can

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request uh send a request to the entity that has it. The entity will send back here's your payment request. They can

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use a payment stable coin to make that payment and then boom, be allowed access and it's essentially instantaneous. So

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AI agents can assist and gather even deeper information than they already have subject of course to the rules of

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the agencies and they're going to have have to have the controls on it. But it enables an immediacy and of of com you

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know commercial transactions on these X42 payment rails that hasn't existed before. And it's a different approach

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than is already being taken by like when you use your debit card at the grocery store. you don't see how it's done. You

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just you click in your card, get it approved, and you make your payment.

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Well, there will be payment stable coin cards that'll be, you know, logoed for whatever entity. And in your wallet,

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it'll enable your wallet that's associated with your card to then do transactions for you via this mechanism,

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this X42 payment rails and make it as easy to use your crypto u and payment

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stable coin form as it is to use your debit card. Now, it's the same kind of thing, but it's a very different pay, you know, use and transaction

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um speed and efficiency. Plus the records of it are in available to you on the blockchain. They're permanent records. They're bring all the

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advantages of using blockchain which is a whole another podcast that we can do at some point soon.

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We should because I think that's a really important thing for people to understand. Okay.

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Well, I I always think of it back I go back to you you and I when Sam Bankman Freed was getting fried and it was all about you know it's crypto and it's

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fraud and it's like brings it up. What what legal structures are emerging then to support stable coin?

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Well, the other half of the regulatory legal framework is what's been called the clarity act or the market

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structuring legislation. There is a bill that has passed the house last year along with the Genius Act, the Clarity

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Act that was to set up to enable the market structure of how cryptocurrency

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would be regulated if it was allowed into the system. Okay? And that has been hung up now on ethics grounds because of

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all the um there are have been a lot of articles about President Trump and his family um using cryptocurrency and

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abusing rugps and scams and I mean committing fraud to be honest with you.

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I mean call call it what it is. Um you know and I have no I'm not a prosecutor. I don't care what to be honest with you.

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I don't know what he's done or his family has done or how they did it or anything else. I'm arms length on that.

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But there is an ethics clause that's got to be figured out in the bill. And there's also uh real problems with how

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payment stable coins the impact that they may have on smaller banks and credit unions. And so there's got to be

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something worked out where there's a uh equality of interest uh rates and

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interest being paid in payments among the payment stable coin crowd and the smaller entities so they don't get edged out. And I think that's a very

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legitimate worry. And so that's hung up the bill. The bill then has been in the Senate for more than a year. And the Senate hasn't done anything this year

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about anything. Yeah, as near as I can tell, they're useless.

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They haven't done a thing. And so, um, in any case, the act is sitting there.

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It's passed through committees. There's been all this hope that maybe it'll pass before the August recess. No, the Senate

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hasn't done anything, and they're going away for five weeks, and the the recess is supposed to have started already, but

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they're hanging around another few days to get a few more things out, including Oh, yeah. budget bill to keep the government going after October one. Oh,

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maybe they should be doing their job and doing that rather than worry about get reelected because they didn't do anything. Maybe none of them should get reelected. Those silly people. I mean,

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the whole the whole group. I mean, pardon me. I'm sorry. I shouldn't have said that. I apologize. Let's cut that out. That I shouldn't have said.

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That's okay. That's okay. Hey, listen. I want to talk about I got about one minute left. AI. How's AI actually going to be get involved with this payment system?

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[snorts]

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Well, AI is an in a great tool. I mean, you know, there's pluses and minuses.

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It's going to be enable this whole system not without the clarity act just with the genius act. It's going to I

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mentioned the payment rails. It's going to be agent aenic AI is really going to be usable through this. And that means

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that you can program research tools that will go out and actually be able to make payments under your control. You got to be careful

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because of course we scares me. Agentic scares me.

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They get away. They can get outside of programming. So it's, you know, you got to be really careful with it. All of a sudden you got a million dollar bill.

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[laughter]

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Yeah.

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You know, so yeah, but it's got to be constrained and you got to work with it.

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But yeah, I think AI using this system, the payment stable coins, is going to be enabled to do quite a quite a lot. And I think it's it's okay.

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It's it's actually a move forward, not backwards.

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Well, Jim, we're about out of time on this podcast. What I want to do, let everyone know I want to do a follow-up podcast with you uh right after this

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about the new book that you and your son Justin have written on all this this very topic and a lot of other things, blockchain, you know, web 3.0, all these

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things in your in your new book. So, let's do that. You with me?

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I am absolutely thrilled. I'm delighted that you supporting us. Thank you.

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Oh, of course we're supporting you. All right, everybody. So join me in part two about Jim's book coming up. Thanks.

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