Passage of a stablecoin bill remains elusive as Republicans and Democrats introduce separate bills.
A bill introduced last month by House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) allows the Federal Reserve Board to refuse registrations from state-approved stablecoin issuers. Her bill would also prevent large commercial retailers from issuing their own stablecoins, which are cryptocurrencies intended to have a stabilized price by being pegged to a commodity or currency or by having its supply regulated by an algorithm.
Waters said federal stablecoin regulations are needed, especially after FTX depositors lost several billion dollars in the wake of the company’s failure last November. Former CEO Sam Bankman-Fried faces numerous charges, including securities fraud, commodities fraud, wire fraud, money laundering and campaign finance law violations. Waters noted that FTX customers in Japan, a country with more stringent crypto regulations, regained access to their deposits.
A separate stablecoin discussion bill introduced by Financial Services Committee Chair Patrick McHenry (R-N.C.) would also require stablecoins to be issued from a provider after approval by either a state or federal banking regulator. McHenry’s bill, however, creates a path for issuers to be licensed and overseen by their state regulator. The Fed would still be able to overrule a state regulator if a disagreement arises over enforcement.
In 2022, U.S. Sens. Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) introduced a bill that would create a firm standard to determine whether digital assets are commodities or securities. The bill, which failed to pass the Senate last year, would have established an optional framework for banks to issue payment stablecoins and create a special depository institution charter under state law and the National Bank Act to issue payment stablecoins.
During a May 18 House Financial Services Committee meeting, Rep. Stephen Lynch (D-Mass.) said the Republican bill would leave state regulators with much of the oversight authority and create a “race to the bottom” with issuers seeking areas with the weakest regulations.
During the hearing, lawmakers expressed differing views. Rep. Brad Sherman (D-Calif.) was critical of both crypto and stablecoins, calling the latter “the biggest oxymoron in the English language.” To him, the existing lack of regulations in the sector has enabled sanctions evasion and other criminal activity.
Rep. Warren Davidson (R-Ohio) said cryptocurrency detractors often create volatility in the market to push decentralized finance to the fringes of the financial system. He cited the recent closing of Signature Bank, which critics initially attributed to its deep ties to crypto. However, the New York Department of Financial Services said its decision to close the regional bank was unrelated to crypto, and former Financial Services Committee Chair and Signature board member Barney Frank also disputed the claim.
During testimony, Former New York financial regulator Matt Homer said the stablecoin regulations New York regulators enforce provide a solid framework for other states. Under the New York law, assets backing stablecoins are held on a segregated basis on behalf of customers; are fully reserved and can be fully redeemed; and have monthly attestations from independent CPAs.
Homer advocated for stablecoin issuers to have a safe harbor to test their products before introducing them to the market and introduce a real-time dashboard providing insight into the backing assets of the stablecoin and the financial condition of the issuing firm. Fennie Wang, founder and CEO of community advocacy organization Humanity Cash, sees Blockchain technology as eventually replacing the currently “outdated” banking and payments infrastructure currently keeping community banks from competing with larger institutions.
House Republicans have also introduced a draft bill intended to establish a clearer regulatory system for cryptocurrencies and allow for the secondary market trading of digital commodities. The bill, introduced by McHenry and House Committee on Agriculture Chair Glenn Thompson (R-Pa.) would provide an avenue for registration for crypto companies and allow crypto securities to be traded on alternative trading systems, both under the purview of the Securities and Exchange Commission The Commodity Futures Trading Commission would oversee the crypto spot commodity market.