What Stablecoins Might Become

(This article was originally published at Coindesk)

Identifying the ideal path to regulatory compliance for a stablecoin has been difficult. It seems that United States regulators have taken a much more active interest in this industry, though it is still not entirely clear what they want stablecoins to be and what they will want stablecoins to be.  

Janet Yellen, the secretary of the U.S. Treasury who recently convened the “President’s Working Group on Stablecoins,” has warned specifically about their risks to the financial system and national security. “Depending on its design and other factors, a stablecoin may constitute a security, commodity, or derivative subject to the U.S. federal securities, commodity, and/or derivatives laws,” she said. This certainly leaves some ambiguity.  However, “in the next few months” we may hear what they recommend.  

Opinions on the appropriate regulatory framework for stablecoins are varied from those who believe that the current money transmitter adjacent framework is appropriate, to those who believe they are more likely going to end up as regulated as banks, to the regulation enthusiasts who believe there should be no space for stablecoins.  It’s apparent that many of the U.S. top policy makers are working on exactly that question, even though there still exists disagreement.  What is certainly clear is that this $130 billion industry has drawn the attention of powerful people.

Gary Gensler at the U.S. Securities and Exchange Commission is suggesting that “stable-value coins” may be securities.  It seems clear that he is trying to tie them to stable-value funds, a fund design that the SEC already claims jurisdiction over.  If stablecoins, or at least stablecoins backed by non-cash assets, are securities then they will no longer be useful for the things that they are now.  It seems unlikely that they would be able to continue to move and trade unimpeded across censorship-resistant global networks.  

Some cryptocurrency companies took a decidedly proactive approach and tried to find existing regulations that they felt more adequately covered what their stablecoin would do.  Avanti, a Special Purpose Depository Institution, a bank with only a state charter, created under new legislation in Wyoming, seems to believe that the Uniform Commercial Code, which (in part) dictates standards for bank notes, would allow for the issuance of a “digital bank note.” If their token is considered a bank note then it will be explicitly exempted from regulation as a security.  This also may in part explain why Paxos has a bank charter and Circle wants one.  

The Office of the Comptroller of Currency has issued guidance that makes it clear that banks are allowed to use stablecoins as part of their normal business, including payments, and that they can hold reserves for stablecoins. This suggests that the path forward for stablecoins may look an awful lot like being a bank.  

However, it may be difficult for depository institutions like Avanti to gain access to Federal Reserve master accounts.  The Narrow Bank, an earlier proposed bank which would have parked their funds at the Federal Reserve and then passed on higher interest rates to depositors, has so far not been able to get such access.  Both Kraken and Avanti have applied for Federal Reserve access and so far neither has been accepted.  Lack of access to the Federal Reserve payment rails would make running a stablecoin more difficult, or require Avanti and Kraken to rely on other service providers who do have access through federally chartered banks.

A new piece of legislation called the STABLE Act will create a framework for stablecoins and other money transmitters where they would be obligated to keep all of their reserves at the Federal Reserve. Under a framework like the STABLE Act there is a much better path towards a more narrow stablecoin issued by a bank.  

There may still be significant legislative, regulatory, and political hurdles related to effectively creating a new type of bank. Furthermore, the STABLE Act is not just limited to what those in cryptocurrency consider stablecoins, but would likely involve a wide array of money transmitters, and may even change things for companies such as PayPal.  

But it’s not just issuers who are eyeing the banking system as a model. ​​Federal Reserve executives, like Governor Jeffrey Zhang in his article “Taming Wildcat Stablecoins,” have proposed bringing stablecoin issuers into the broader bank regulatory framework. While the Federal Deposit Insurance Corporation (FDIC), a federal agency, is reportedly studying how to extend deposit insurance to stablecoins to help protect users. Meanwhile, the Biden Administration has stated it thinks stablecoin issuer are at least “bank-like.”  

The Digital Asset Market Structure and Investor Protection Act outlines a process where every stablecoin issuer to apply to the Treasury, at which point they check with the Federal Reserve, the SEC, the CFTC, and banks and they decide whether or not to approve the stablecoin.   

If this passes (it’s currently in committee in Congress), any unapproved stablecoin – including any digital asset pegged or collateralized significantly by any fiat currency – would then be unlawful.  However, this would provide a path for approved stablecoins to avoid being considered a security.

It is difficult to say exactly how this will play out. My intuition is that a new type of banking charter will be created that will allow stablecoin issuers to access Fed master accounts and there will be an expectation that stablecoins will hold their reserves there.  It also seems reasonably likely that the Treasury gets their way and stablecoin issuers will need to register with the Treasury. I expect that securities regulations may be part of the cudgel that will be used to help ensure that the only stablecoins are the “approved” stablecoins.  

The end result of this will likely be that any stablecoin issuer that wants to continue operating would need to become a bank and is going to have significantly less flexibility with what they can do with their reserves.  Those that choose not to register or are not approved are likely to have difficulty accessing the U.S. banking system. They may have trouble servicing redemptions, and may perhaps even find themselves aggressively pursued by regulators.

The effect on the average crypto user is likely a degradation of their experience using stablecoins. However, there will be significantly greater certitude surrounding the backing and safety of the token, and regulators will no longer have to worry about them being an existential financial risk. In effect the government may take the private money that is stablecoins, and integrate it into the banking regulation framework so that it can become publicly guaranteed.

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A History of Tether and Bitfinex’s Audits, Attestations, Memos, and Letters: Both Promised and Actual

A History of Tether and Bitfinex’s Audits, Attestations, Memos, and Letters: Both Promised and Actual Bennett's Articles

https://bennettftomlin.com/2021/07/17/a-history-of-tether-and-bitfinexs-audits-attestations-memos-and-letters-both-promised-and-actual/ Amidst all the confusion surrounding Tether and Bitfinex it can be difficult to keep track of what they have actually provided in terms of audits, attestations, and other documents to support their contentions. Here I will summarize, but the important note that needs to be included at the top is that both Bitfinex and Tether once hired an auditor, but neither ever completed the audit. Ever since Tether was founded they have promised to provide a full financial audit. It feature prominently in their whitepaper and on their website for years. They have never provided this audit, but have provided a variety of other documents meant to convince the public that they had sufficient backing for the tethers in circulation. In March of 2015 Tether and Factom announced (archive) they had formed a partnership to provide greater transparency into Tether’s holdings. The partnership never provided any additional transparency into Tether or its operations. In August of 2016 Bitfinex promised (archive) to provide a full financial and security audit after they were hacked. They initially announced that Ledger Labs was hired to perform both. No audit from Ledger Labs was ever released. This was likely in part due to the fact that Ledger Labs was not able to provide financial audits. In May of 2017 Bitfinex announced (archive) they had engaged Friedman LLP out of New York to audit them. As of today in 2021 we have yet to get an update from Bitfinex on the status of this audit. In September of 2017 Tether announced (archive) that they had engaged Friedman LLP out of New York to audit them. This audit would never occur, we would eventually get an update from a Tether spokesperson saying the relationship dissolved, citing the “excruciatingly detailed procedures”(archive) that the auditor wanted to undertake. Also in September of 2017 Tether released from previous attestations from a small accounting firm in Taiwan called TOPSUN. These were monthly attestations attesting to Tether having sufficient backing for the end of the month from December 2016 through March 2017. Strangely these were not completed at the end of the respective months but were all completed on May 23rd 2017. (Strangely approximately two weeks after they announced that Friedman had been brought on to audit Bitfinex) Read more… https://bennettftomlin.com/2021/07/17/a-history-of-tether-and-bitfinexs-audits-attestations-memos-and-letters-both-promised-and-actual/

Amidst all the confusion surrounding Tether and Bitfinex it can be difficult to keep track of what they have actually provided in terms of audits, attestations, and other documents to support their contentions. Here I will summarize, but the important note that needs to be included at the top is that both Bitfinex and Tether once hired an auditor, but neither ever completed the audit.

Continue reading “A History of Tether and Bitfinex’s Audits, Attestations, Memos, and Letters: Both Promised and Actual”

Sunday Reads – Links I Found Interesting 2021-05-16


Tether Releases Asset Breakdown

I wrote up my thoughts on it here.

Cas Piancey and I also did a podcast episode on it:

David Gerard wrote up his and seems to have trouble determining what a ‘reverse repo note’ might be:


Amy Castor (archive) also wrote up her thoughts on this not particularly valuable breakdown.

The Financial Times did some coverage as well and got some great quotes.

Nikhilesh De at Coindesk had some of the best ‘breaking’ coverage of it the morning it came out.

Protos also had some excellent coverage which helped dissect the backing.

Crypto Capital Corp and Backpage

Kyle Gibson discusses some of the links between Crypto Capital (who I covered here) and Backpage.

Zhao Dong Tried and Sentenced

Protos Media covers the sentencing and the trial 



My co-author Cas Piancey did a summary podcast.

Cas has been one of the most proactive in covering Zhao Dong.

Zhao Dong Still Matters: Here’s Why

Zhao Dong: The Final Word

Another Usecase Bites the Dust

Elon Musk Finally Learns About Bitcoin

Dungeons and Dragons Combat Wheelchair 2.1 Released

This is a really cool item and ruleset if you have players at your table who want to play with a wheelchair.


Protos Media revealed that one of the top Brexit donors Christopher Harborne is a Bitfinex shareholder. It is currently unclear if he is related to Will Harborne, former leader of EthFinex.

I compared Tether to wildcat banks and Liberty Reserve and gave away how I think the story ends.

I spent some time detailing troubling links between the 2015 Bitstamp Hack, the 2015 Bitfinex hack, and the 2017 Tether hack.

This old podcast is worth a listen. Larry Cermak (Director of Research at the Block) and I discuss whether or not Tether is a good actor. He says he would be shocked to find out that Tether was less than 98-99% backed.

I finally got to give this homebrew item to a player in my campaign and they seemed quite excited.

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New Episode of ‘Tether: A Stable Discussion’ with Cas Piancey: Tether’s Pie Charts

Episode One

Episode Two

Episode Three

My co-author and friend Cas Piancey and I got together to discuss the recent pie charts released by Tether. You can find the discussion of it here:

You can find my article on this topic here:

And Cas’ here:

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The 2015 Bitstamp, 2015 Bitfinex, and 2017 Tether Hacks are Connected

Note: An earlier version of this article contained a version of this diagram with a minor typo.

Acknowledgements: I would not have been able to complete this as thoroughly as I did without building off existing work. It needs to be pointed out that years ago u/SpeedflyChris (archive) pointed out these same connections. I also relied heavily on WalletExplorer.com a tool created by Aleš Janda.

In January of 2015 Bitstamp was hacked in what they described as a phishing attack. (Archive) These funds were withdrawn to 1L2JsXHPMYuAa9ugvHGLwkdstCPUDemNCf (referred to as 1L2 for the remainder of this piece for convenience) at first. Bitstamp also sent funds to 1AXsTbi4sSH1M5hccgdEVn5et9xFd7Bxpd (referred to 1AX) and 16KYFJiAoM4aX82xw2V3YBHX72trWNhz48 (referred to as 16KY). All 3 of these addresses which received withdrawals from Bitstamp were part of the same wallet and this can be determined by reviewing the transactions where they ‘co-spent’ or both provided inputs to a transaction, suggesting the same person could sign for both addresses. 1L2 and 1AX co-spent in transaction 7e80957db4514d150899b308b0472b51ce7b3dbd979f2b3e80681cb9067dac13 and 16KY and 1L2 co-spent in transaction 41afc875a478acdf322ea37e6edcd3878627e6d0b4a6c4de280708c822670b2a. This suggests the 2015 Bitstamp hacker was receiving funds from Bitstamp as late as December 19th 2018 in transaction 4a05c4347d5cf797f7eeacc1d1b6881ef9e4e71195025bb3275a18f495b988be. That is a LONG hack.

Continue reading “The 2015 Bitstamp, 2015 Bitfinex, and 2017 Tether Hacks are Connected”

Why I Unpublished My Book

For those who do not know, I use to run a nutrition and health website called Scientific Nutrition. While running this site, I came across intermittent fasting and in reviewing the literature, I thought it was a potentially useful behavioral trick for weight loss. However, I also found a variety of people making entirely nonsensical claims about intermittent fasting. They believed it cured cancer, diabetes, and overall was the solution to greater health. I wrote a book called The Optimized Guide to Intermittent Fasting that was meant to look at a healthy framework for using intermittent fasting for weight loss, combined with scientifically rooted myth busting surrounding claims others had made. I recently chose to unpublish this book and I would like to publicly discuss the reasons.

I always had a fear surrounding intermittent fasting that it looked a lot like disordered eating, but convinced myself that this is true for many diets, and allowed myself to go forward writing about it. However, as I have spent more time reviewing recent literature, and reflecting on my own eating patterns I felt compelled to remove it.

First, let’s address some of the recent literature that has been published and how that factored into my thought process. A recent five year prospective study on Bulimia Nervosa identified intermittent fasting as a strong risk factor for the development of bulimia. (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2850570/) Furthermore, it suggested that intermittent fasting is a much better predictor of development than assignment to a weight loss diet. There is also generally a pattern in the pscyhology research that suggests that using any unhealthy or excessively strained eating pattern can correlate with later development of bulimia and binge eating disorder. This is consistent with my own experience.

I have for much of my life struggled with a nearly compulsive need to eat, and have often felt out of control while I am eating. Starting about a year and a half ago I shared this fact with my primary care provider, and have started receiving treatment for it. However, in the past it has been a problem that has repeatedly dogged me. It was always a source of great shame, and as such I was an expert in hiding my eating. If you occasionally grab some things out of the pantry, and eat less at the meals, then people might not notice. If you grab a Wendy’s Dave’s Double combo and eat it before you get home then no one has to know. If you eat this candy bar from the grocery store before you get back then no one will see it. These narratives had always been present in my head, and had influenced my relationship with my body, my weight, and my confidence.

There were periods where these feelings of shame surrounding my eating were nearly overwhelming. I remember several times in college where I would be kneeling over the toilet bowl, hoping I would be able to purge, because if I did then maybe I would not feel so wrong. I never did, and I am grateful for that fact, but in considering my own behaviors and the things I have written I have come to the conclusion that I can no longer endorse my own work.

The fundamental problem with intermittent fasting is that it represents the same thought pattern as certain types of disordered eating. Namely, that you can eat and consume and do all of that to your limit, so long as you follow this other procedure. It seems to serve much of the same purpose for many people as purging does.

Eating disorders are some of the mostly deadly mental illnesses, and lead to badly damaged health across a variety of measures, not to mention the difficulty inherent in living with them. As such, I have unpublished my book, will be removing any older podcast episodes discussing intermittent fasting, and adding a disclaimer to any older articles that will link back to this article. This may take me some time, so please be patient, but it is happening.

I am writing this article, because I have strongly publicly advocated for some of these techniques, and as such now that I no longer believe them I feel that you deserve to know that. I do still believe that intermittent fasting can be effective for some people, but I worry that the people advocating it for broadly or as a panacea may be unintentionally contributing to health problems, and I regret strongly that I did the same.

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Sunday Reads – Links I Found Interesting 6/16


PyTorch Hub is an awesome new step forward in research reproducibility for machine learning and artificial intelligence. Makes it super easy to publish your pre-trained research models and for others to download them and test them. I was shocked how uncommon it was for people to publish their models when I first started reading machine learning papers.

An enzymatic pathway in the human gut microbiome that converts A to universal O type blood

This was a metagenomic study that identified two enzymes that may help convert A and B blood to O increasing the supply of blood available.


This is a cool ArXiv access point with upvoting and down voting, ability to save notes, see twitter commentary on paper and more.