Last month the Texas Department of Banking published an updated supervisory memorandum discussing the application of the state’s money transmitter law to digital assets. Nearly every state has a money transmitter statute regulating businesses engaged in the transfer of money within that state, but states vary considerably with respect to how their laws apply to digital assets. A number of states, including Texas, have taken the position that their money transmitter laws apply only to fiat currency and not cryptocurrency. Such laws might still apply to a cryptocurrency company, for example one that exchanges cryptocurrency for fiat currency, but don’t govern companies that do not offer fiat-based services.
Most observers have assumed that stablecoins, a type of cryptocurrency tied to an underlying asset in order to promote price stability, would be treated like other types of cryptocurrency and not regulated in states whose laws apply only to fiat currency. However, the recent guidance from Texas, a fiat-only state, takes a more nuanced approach.
Under the new Texas guidance, stablecoins that are (1) backed by fiat currency and (2) issued with a redemption right to convert the stablecoin into fiat currency at a future date are considered “money or monetary value” under the Texas Finance Code and therefore may be subject to the state’s money transmitter licensure requirement. The guidance adds, “This is true regardless [of] whether the redemption right is expressly granted or implied by the issuer.”
Notably, the Texas guidance on such stablecoins appears to apply to any entity “receiving [the stablecoin] in exchange for a promise to make it available at a later time or different location.” This means that in addition to the issuer of the stablecoin, other entities dealing in the stablecoin, such as an exchange, may need to obtain a license to operate within Texas. This could have important implications for a variety of digital asset companies, including crypto-to-crypto exchanges, which may have previously viewed themselves as outside the scope of the state’s regulations.
The Texas guidance marks the first time a state regulator has explicitly addressed the issue of stablecoins. It remains to be seen whether other states with fiat-only money transmitter regimes will move to regulate fiat-backed stablecoins. In the meantime, the new Texas guidance will create an additional layer of complexity for digital asset companies seeking to comply with the complex and differing web of state money transmitter laws.