The Digital Assets Financial Technology Inclusion Committee held a hearing on May 18 to discuss stablecoin policies.
Opening the meeting, Congressman French Hill said the committee’s intent is to pass legislation supporting stablecoins as a recognized payment method.
“We want payment stablecoins to be used as a payment mechanism, which they really are not today. The only way we can do that is by adopting the right regulatory framework.”
Regarding the issue of anti-crypto sentiment at the government level, Congressman Hill clarified that committee members have the power to reverse the trend of US crypto flight and “propel the US as the leading place for secure payment innovation.”
“I look forward to our witnesses’ views on the two proposals and will ultimately bring legal clarity and consumer protection to the stablecoin ecosystem.”
Finding bipartisan agreement on stablecoin regulation
Building on the previous stablecoin hearing that took place in September 2022, both sides submitted revised proposals addressing key points with a view to finding alignment in approving the appropriate stablecoin regulation.
Some of the main concerns include the speculative nature of stablecoins, which are primarily used for trading against cryptocurrencies, structural vulnerabilities that make them susceptible to runs, the role of state vs. federal regulators, the outcome of non-banking firms who issue stablecoins, how disclosures and statements would work, the role of the Fed, and protection against threats to economic stability.
To address these concerns, testimonies were heard from Fennie Wang, Humanity Cash founder Matt Homer, Managing Member, The Department of XYZ and former Leadership Deputy Superintendent of Research and Innovation at the New York State Department of Financial Services (NYDFS), David Portilla, partner at Davis Polk & Wardwell, Robert Morgan, de CEO of USDF Consortium, and Delicia Reynolds Hand, director of financial justice.
This was followed by witness examinations by committee members to address the concerns raised.
Q&A Highlights
Congressman Lynch pointed out that if stablecoin regulation were given to individual states to decide, they would be encouraged to ratify lax regulations to draw stablecoin issuers into their jurisdiction — triggering a downward spiral of regulatory leniency among competing states to bring.
It was noted that Congressman Lynch did not know the difference between cryptocurrencies and stablecoins – as evidenced when he asked Mr. Homer how many stablecoins were registered and approved in New York State.
Congressman Lynch said a ratio of five approved stablecoins in New York to 20,000 is evidence of an impending “race to the bottom”. Mr. Homer did not correct the congressman.
With regard to stablecoins and the status of securities, Congressman Bryan Steil mentioned the recent SEC Wells Notice filed against Paxos – in which the securities regulator alleged that the company had issued an unregistered security in the Binance USD stablecoin.
Congressman Steil asked Mr. Homer for his opinion on the matter, to which he replied that the Howey test was applied incorrectly in this case, as it is difficult to understand how a stablecoin user has a profit expectation.
Congresswoman Maxine Waters discussed the Fed’s role in stablecoin oversight and suggested to Ms. Hand that top-down legislation, with the federal level at the top, would provide better consumer protection.
Ms. Hand agreed that the role of federal agencies at the top is critical to consumer protection. She stated that the Fed could supervise stablecoin in the same way as chartered banks.
“There should be a role for the Fed to review applications and reject them if they don’t meet certain requirements.”