Stablecoin Issuers May Need Licenses in Texas, Unlike Most Crypto Startups

Stablecoins may qualify as “money” under Texas law, according to updated guidance from the state Department of Banking.

A memo published Wednesday by Texas Banking Commissioner Charles Cooper outlines how cryptocurrencies are to be treated under local and federal regulations, in particular adding details of how stablecoins backed by sovereign, or fiat, currencies may be assessed.

The guidance builds upon a previous memo released by the state in 2014, which described how cryptocurrency companies with operations in Texas should treat the nascent asset class.

As in the previous version, Cooper notes that cryptocurrencies are not treated as money under Texas law, and exchanging cryptocurrencies for fiat does not count as "currency exchange." As such, startups do not need to acquire currency exchange licenses to conduct transactions – making the Lone Star State one of the nation's most permissive.

However, in the revised version Cooper adds that stablecoins may fall under existing definitions of "money" or "monetary value," and therefore anyone who purchases the stablecoin has a claim to the sovereign currency assets underlying the tokens they possess.

This is "because the issuer has taken on the obligation to provide sovereign currency in exchange for the stablecoin at a later time," Cooper writes.

Warning to comply

The document specifically outlines Texas banking policy on different forms of crypto transactions, including crypto-to-crypto exchanges and crypto-to-fiat exchanges. The document also outlines how directly transferring cryptocurrencies from one party to another does not qualify as money transmission.

It further adds:

"In contrast, because a sovereign-backed stablecoin may be considered money or monetary value under the Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location may be money transmission."

Whether a stablecoin issuer or exchange actually owes a holder fiat currency may be dependent on analysis, however.

Cooper concludes his memo by warning exchanges and other startups that they must comply with relevant laws, particularly if they conduct money transmission.

Fiat currencies image via Shutterstock