Stablecoins finally had their hearing as the House Financial Services (HFS) new Subcommittee on Digital Assets, Financial Technology and Inclusion gathered at the Rayburn House office building for “Understanding Stablecoins’ Role in Payments and the Need for Legislation.”
The hearing proved that, for the most part, bipartisanship on Capitol Hill has rapidly dissolved on digital assets legislation. Furthermore, it appears Democrats have unified around an anti-crypto positioning. Rep. Ritchie Torres (D, NY) and Rep. Wiley Nickel (D, NC) may be the only exceptions among those who spoke during the Subcommittee’s hearing.
The prospects for new United States digital assets regulation – other than enforcement of current securities and commodities laws – could be closed for this Congress.
The HFS memorandum for the hearing set the stage with a definition of stablecoins: “Stablecoins are a class of digital assets designed to offer price stability by being pegged to another asset’s value.” And, a witness list of mostly pro-crypto, industry representatives provided the input on not only the stablecoin and digital asset industry, but on the new stablecoin bill (PDF) first revealed over the weekend.
- Adrienne Harris, Superintendent, New York State Department of Financial Services (prepared testimony – PDF)
- Dante Disparte, Chief Strategy Officer and Head of Global Policy, Circle (PDF)
- Austin Campbell, Adjunct Assistant Professor of Business, Columbia Business School (PDF)
- Jake Chervinsky, Chief Policy Officer, The Blockchain Association (PDF)
- Delicia Reynolds Hand, Director, Financial Fairness, Consumer Reports (PDF)
Subcommittee Chair Rep. French Hill (R, AR) started the hearing off with his own opening comment reaffirming the interest of the HFS Committee to introduce a stablecoin bill emanating from the last Congress “when the clock ran out.” Hill named the bill “Maxine McHenry” after the Ranking Member Rep. Maxine Waters (D, CA) and Chair Rep. Patrick McHenry (R, NC).
As Hill reviewed the bill, he said that it would inhibit any possibility of a “run” and urged Members to move quickly thereby encouraging innovation, protecting consumers and move toward bringing clarity for digital assets beginning with stablecoins.
Subcommitee Ranking Member Rep. Stephen Lynch (D, MA) reviewed the need for stablecoins in his opening statement and then dropped a bomb. He suggested it’s worth reviewing whether stablecoins are even needed in wake of FedNow and a Central Bank Digital Currency. And then he revealed his disapproval of the bill given it was made pre-FTX implosion and listed his significant reservations. This was surprising – this bill had been driven by Ranking Member Waters, in part.
After a brief statement by Chair McHenry, Ranking Member Waters then spoke and clarified the Democratic position saying that the bill posted was no longer relevant given events at the end of last year (FTX), needed to be renegotiated and expressed disappointment in the way the bill has been pushed by Republicans.
Waters statement was a big change from what she said only one month ago in regards to wanting stablecoin legislation “as quickly as we can.” Clearly a setback to stablecoin legislation for this Congress, the tone represented by Waters and Lynch showed Democrats will hesitate to approve any legislation.
Chair Hill said in response that he looks forward to negotiating with Democrats but it felt like the gauntlet had been dropped. He then turned to the witness table and asked each to make his or her five minute presentation. Did any of them matter to Democrats? The influence of Securities Exchange Commission (SEC) Chair Gensler seems reasonable to assume along with the idea that at the very highest level of the Democratic power structure, being anti-crypto, anti-digital assets is a winning issue for 2024 elections.
Chair Hill began with the eternal question around security versus commodity and whether stablecoins were a part of this discussion. Witnesses agreed they were not.
NYDFS Superintendent Adrienne Harris discussed the many consumer protections that her state has in place as it relates to stablecoins. New York State appeared to be a microcosm of what successful stablecoin legislation could be at a federal level.
Ranking Member Lynch began his questions by oddly saying that some stablecoins failed after FTX although he was not clear on what stablecoins he meant. (He later clarified that he meant Terra Luna which was a year ago.)
“Stablecoins are not stable,” said Lynch. He asked Ms. Hand about why the current legislation does not address risks recently revealed in the past few months (FTX, banking crisis, de-pegging of USDC and other stablecoins). Ms. Hand offered up such risks as “self-dealing” that are not addressed in the current legislation.
Lynch then equated stablecoins to acting “like banks” as a challenge and asked Ms. Hand for her thoughts. She emphasized the need for similar regulation and consumer protections for stablecoins as banks.
Surprisingly, Ranking Member Waters said to Superintendent Adrienne Harris in the beginning of her Q&A that she did not know New York State had a stablecoin regime. Harris said crypto did not cause Signature Bank’s failure, which she had said previously. Waters didn’t seem to believe that crypto was not a part of it. Perhaps unbeknownst to Waters is that Harris is fighting the idea that there was a Choke Point 2.0.
Rep. Bill Foster (D, IL), a co-chair of the Congressional Blockchain Caucus in the previous Congress, asked of the panel about a solution to identity and self-custody and preventing ransomware. Foster cut off witnesses and was adamant, “You either support ransomware or you don’t. (…) I think people of the United States do not want to live in a place with anonymous transactions.” Foster’s point is around maintaining an Anti-Money-Laundering and Know-Your-Customer regime in digital assets. Foster advocated for a license plate which is also anonymous, he said.
Rep. Torres announced that he would not support any federal stablecoin legislation that would usurp the authority of New York State’s current stablecoin regime. Torres then made the point that SEC Chair Gensler’s assertion that digital assets undermine the financial system is wrong. Superintendent Harris agreed as it related to what has transpired in New York State.
Rep. Brad Sherman (D, CA), a renowned critic of cryptocurrency and digital assets, made clear that he believes the crypto industry is about tax evasion. It’s hard to imagine Rep. Sherman approving any new stablecoin legislation.
Notably, Rep. Nickel, a Democrat, stated he is hopeful about bipartisan stablecoin legislation after he finished reading a statement supporting the position of Ranking Member Waters.
A replay of the hearing: