On May 18, the Digital Assets Financial Technology Inclusion Committee held a hearing to discuss stablecoin policy. The committee aims to pass legislation supporting stablecoins as a recognized payment method. The meeting was opened by Congressman French Hill. He highlighted the need to pass the appropriate regulatory framework to allow stablecoins to be used as a payment mechanism. He also spoke about reversing the trend of U.S. crypto flight by making the U.S. the leading place for safe payments innovation.
Key Concerns and Witness Testimonies
The hearing was a follow-up to the stablecoin hearing held in September 2022. Both parties submitted revised proposals addressing key concerns to find alignment on approving appropriate stablecoin regulation. Some of the key points of concern include the speculative nature of stablecoins, structural fragilities making them susceptible to runs, the roles of state versus federal regulators, the outcome of non-bank companies issuing stablecoins, how disclosures and attestations would operate, the role of the Fed, and safeguarding against threats to economic stability.
During the hearing, witness testimonies were heard from various experts in the field. Fennie Wang, the founder of Humanity Cash, Matt Homer, Managing Member at The Department of XYZ and former Executive Deputy Superintendent of Research and Innovation at the New York Department of Financial Services (NYDFS), David Portilla, Partner at Davis Polk & Wardwell, Robert Morgan, the CEO of USDF Consortium, and Delicia Reynolds Hand, Director of Financial Fairness, all spoke about their views on the two proposals.
Congressman Lynch raised concerns about individual states deciding on stablecoin regulation. He highlighted that if given the power, states could ratify lax regulation to attract stablecoin issuers to their jurisdiction. This could trigger a downward spiral of regulatory leniency among competing states. However, Congressman Lynch mistakenly used the terms cryptocurrencies and stablecoins interchangeably, showing a lack of understanding of the subject.
Congressman Bryan Steil spoke about the recent SEC Wells Notice served against Paxos, alleging that the company had issued an unregistered security in the Binance USD stablecoin. He asked Mr. Homer for his opinion on the matter, to which he replied that the Howey Test was incorrectly applied in this case as it’s hard to understand how a stablecoin user has an expectation of profit.
Congresswoman Maxine Waters highlighted the need for top-down legislation with the federal level at the top to ensure better consumer protections. Mrs. Hand agreed that the role of federal agencies at the top is key for consumer protection. She stated that the Fed could operate stablecoin oversight the same way as it governs chartered banks.
The hearing on stablecoin policy addressed concerns related to the regulatory framework required to allow stablecoins to be used as a payment mechanism. The experts provided their views on the two proposals, and the committee members raised questions to address the concerns raised. The hearing highlighted the need for top-down legislation to ensure better consumer protection, and the role of federal agencies at the top is key for consumer protection.