The House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion, led by Chairman French Hill (AR-02), held a hearing on April 19 titled "Understanding Stablecoins’ Role in Payments and the Need for Legislation." The hearing aims to discuss the potential benefits and risks of stablecoins, as well as to establish a regulatory framework for payment stablecoins in the U.S.
In his opening remarks, Chairman Hill emphasized there is more work to be done.
"It is my goal that our payment stablecoin legislation will provide different ways for issuers to come into compliance. I believe innovation is fostered through choice and competition, and one way to do that is through multiple pathways to become a stablecoin issuer, though with appropriate protections so that we prevent regulatory arbitrage and a race to the bottom,” Hill said.
Chairman Hill also addressed the growing concerns surrounding the stablecoin market, stating, “Recent reports indicate that digital asset developers are leaving America to go to countries that have a more established regulatory framework for digital assets. This is not good for innovation, jobs, or consumer and investor protection.”
“The ongoing turf war between the SEC and the CFTC over digital assets is also not just unhelpful, but unsustainable. When you have two agencies contradicting each other in court about whether one of the most utilized stablecoins in the market is a security or a commodity, what you end up with is uncertainty.”
“Federal regulators have made it abundantly clear that without an act of Congress, they will continue to interpret their authorities broadly, even when in direct contradiction with one another.”
The U.S. Securities and Exchange Commission (SEC) has increased enforcement actions in the cryptocurrency industry, targeting stablecoins amid debates on whether they should be regulated as securities, Investopedia reported. This follows the collapse and bankruptcy filing of crypto exchange FTX. In February, regulators directed Paxos to stop issuing Binance USD (BUSD), the third-largest stablecoin in circulation with a $12 billion market value.
Stablecoins, cryptocurrencies pegged to a commodity or currency like the U.S. dollar, are designed to avoid the volatility affecting other cryptocurrencies according to the Federal Reserve. They play a key role in the decentralized finance (DeFi) ecosystem and are used in transactions for goods and services. Over 80% of trades on major crypto exchanges involve stablecoins.
Experts fear that SEC involvement could drive the entire stablecoin industry out of the U.S. Coinbase statedon Twitter, “Imposing securities law onto stablecoins through enforcement instead of guidance or dialogue with the industry will simply push innovation offshore and weaken our global role.” The crypto space currently allows innovation to flourish, but insiders are concerned that an SEC crackdown could drive innovation to countries like Singapore and Hong Kong, which only permit asset-backed stablecoins.
Jon West, a founding board member of the Texas Blockchain Council (TBC), told Legal Newsline, “We need leadership in a handful of States instead of Washington DC. State legislatures need to step up and innovate and create something the Feds can later copy.” A sell-off could undermine the U.S. economy, as nearly 90% of all stablecoins are pegged to the USD and represent a global benchmark in the exchange of crypto assets.
“Overall, the interest of investors looking to finance development in the space is certainly waning,” Kristin Smith, Blockchain Association CEO, told Time Magazine. “Developers have to be thinking twice about starting something here in the United States.” The Blockchain Association is a crypto lobbying group based in Washington, D.C.
Witnesses at the hearing included Adrienne A. Harris, Superintendent of the New York State Department of Financial Services; Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle; Austin Campbell, Adjunct Assistant Professor of Business at Columbia Business School; Jake Chervinsky, Chief Policy Officer at The Blockchain Association; and Delicia Reynolds Hand, Director of Financial Fairness at Consumer Reports.
