New US Defense Bill’s Impact on Stablecoins and Coinbase

Stablecoins like USDC could face a challenging situation if the new national defense bill, approved by the US Senate and potentially becoming law, is implemented. The 2024 National Defense Authorization Act might introduce stringent Know Your Customer (KYC) and anti-money laundering requirements, which could be difficult for stablecoin issuers to comply with.

The proposed amendment would mandate the US Treasury Secretary to establish examination standards for crypto assets, aiming to ensure compliance with money laundering and sanctions laws. This move comes as stablecoin holders’ identities are typically only known during issuance and redemption, making it challenging to meet the new KYC law’s requirements. Consequently, the value and market cap of stablecoins like USDC may be directly impacted.

The 2024 National Defense Authorization Act could also negatively affect Coinbase, as the exchange derives a significant portion of its net revenue (27% during the first quarter of the year) from interest income on USDC.

Coinbase’s stock has performed well recently, partly due to favorable rulings for Ripple Labs and the filings for spot Bitcoin ETFs from major companies like BlackRock.

The importance of KYC lies in its role in preventing various crimes, particularly money laundering. The process of “Know Your Customer” is crucial for companies and financial institutions to identify and verify the identities of their customers, helping to deter illegal activities. The Financial Action Task Force (FATF) is the primary global regulator responsible for setting international regulations to combat money laundering and terrorist financing.

source