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State and federal regulation was a key issue in the stablecoin hearing in the US House of Representatives on May 18th. The new House Financial Services Committee Subcommittee on Digital Assets, FinTech and Inclusion heard testimony from five experts as it considered two proposed bills to regulate stablecoins.
There were two bills before the subcommittee. The Republican bill was published in April ahead of the stablecoin hearing at the Financial Services Committee. Ranking member Maxine Waters later submitted a competing draft based on a bill that was introduced but not passed in the last session of Congress.
#WATCH: President @RepFrenchHill at today’s stablecoin hearing:
“Without action from Congress … stablecoin issuers will not feel confident to build their projects in the US”
Read more https://t.co/9yWNDbG46G
Watch his full remarks pic.twitter.com/v3cMMxTTXr
— Financial Services GOP (@FinancialCmte) May 18, 2023
The “race to the bottom” was the biggest controversy over the regulation of stablecoins at the state level. The Republican bill would allow stablecoin operators to choose the state in which they register without going through the Federal Reserve Board.
Supporters of the bill argue that the floor would prevent a race to the bottom and reflect the two-tier system of US banking regulation at the federal and state levels. The Democrats were not convinced. The Democratic bill keeps access to regulation in the hands of the federal government with the appropriate regulatory authority. David Portilla, partner at Davis Polk & Wardwell, preferred the middle path. He said:
“Federal regulation of stablecoin issuers will offer more uniform and consistent rules, while government regulation can promote greater diversity and innovation in regulation and oversight. The answer to this question does not have to be binary.”
In any case, the current rules are not suitable for stablecoins, he said. In addition to a “bottom” mechanism for federal participation in stablecoin regulation to set minimum standards, there could be a “switch” depending on the size of the issuance, he said. The Republican bill would regulate all issuers equally, regardless of their size.
Related: Cryptocurrency Congressional Hearings Illustrate Political Deadlock Over Digital Assets
National interest was raised repeatedly when Rep. Brad Sherman, a vocal opponent of cryptocurrencies, argued that a dollar-backed stablecoin would compete with and undermine the fiat dollar, thereby reducing the effectiveness of US sanctions.
Another stakeholder, Matt Homer of venture capital firm XYZ, said: “Stablecoins will come whether we want to or not,” adding, “Offshore issuers can create dollar-backed stablecoins just like US issuers. We need to do it in the US so we can regulate it on our terms.” Cryptocurrency advocate Warren Davidson echoed Homer by saying:
“Often they [разработчики стейблкоинов] flee our shores in search of certainty. So it would be great if we could provide them.”
USDF Foundation CEO Robert Morgan spoke in favor of the current regulatory framework and the benefits of tokenization for traditional banks. He described tokenization as a “third way”.
