Major US lawmakers delayed a bipartisan bill to reduce stablecoin risk until at least September 2022.
Lawmakers working on a yet-to-be-agreed bill on behalf of House Financial Services Committee Chairs Maxine Waters (D. Calif.) and Patrick McHenry (R., N.C.) could not complete the bill ahead of a possible committee vote on Wednesday. , July 27, 2022.
The bill is one of the first to bring a regulatory structure to the cryptocurrency industry, which has largely become federally unenforceable, except for a patchwork of state law. The Biden administration and the House committee have expressed concern that stablecoins, a class of digital assets tied to the US dollar, pose a threat to financial stability. This follows a recommendation from the administration’s Treasury-led panel that Congress developed a framework around stablecoins late last year, limiting their issue to banks.
Earlier this year, U.S. Senate Banking Committee ranking member Pat Tomei (R-Pa.) proposed a looser draft bill called the Stablecoin Trust Act that would create a new license for stablecoin issuers or money transmitter businesses. I will maintain his position. With a licensing scheme like a bank.
Stablecoins are used to purchase other digital assets on cryptocurrency exchanges such as Binance and Coinbase.
MLA unable to complete the bill
The delay potentially pushes the bill to sometime in September 2022, after Congress’s late summer recess. Bill depends heavily on the outcome of the negotiations between Waters and McHenry. Lawmakers and staff burned oil at midnight over the weekend but failed to complete the draft by Monday, July 25, 2022, with some key issues still to be negotiated.
Among the issues are standards for custodial wallets, which Treasury strongly lobbied for. The Treasury also assisted with the overall bill. However, as revealed in a recent call between Waters and Treasury Secretary Janet Yellen, Yellen did not give a thumbs up because she had not yet contacted the White House.
Terra and Tether give MPs sleepless nights
The bill has taken on a new urgency following the collapse of the TeraUSD algorithmic stablecoin in May and the brief de-pegging of the Tether (USDT) stablecoin. Lawmakers are now concerned about the prospect of a bank-driven scenario, where investors who are wary of stablecoin issuers’ ability to provide a dollar for each mined coin to massively redeem their tokens, Stablecoins force issuers to liquidate reserves. Stablecoins are supposed to be backed one-to-one by liquid reserves, ready to honor redemptions.
Toomey’s draft bill would protect consumers by forcing issuers to disclose assets backed by a stablecoin, have clear redemption policies, and conduct verification by accounting firms.
The new House bill would impose federal supervision over stablecoin issuers, including minimum capital requirements and liquidity standards, as a safeguard.
But the delay could quell concerns presented by lobby groups and some regulators, who feel that drafting the bill without consulting key industry stakeholders has moved too quickly. For example, The Independent Community Bankers of America has pushed for delays, and so has the Securities and Exchange Commission.
On the other hand, the Treasury-led Biden panel said if Congress did not act, it would assign the Financial Stability Oversight Council (FSOC) the task of assessing risks to the broader financial system.
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