On Wednesday, April 19, 2023, at 10:00 a.m. (ET) Subcommittee on Digital Assets, Financial Technology and Inclusion Chair Congressman Hill and Ranking Member Congressman Lynch will host a hearing entitled, “Understanding Stablecoins’ Role in Payments and the Need for Legislation."
___________________________________
Witnesses for this one-panel hearing will be:
• Adrienne A. Harris, Superintendent, New York State Department of Financial Services
• Dante Disparte, Chief Strategy Officer and Head of Global Policy, Circle
• Austin Campbell, Adjunct Assistant Professor of Business, Columbia Business School
• Jake Chervinsky, Chief Policy Officer, The Blockchain Association
• Additional Witness
___________________________________
Evolution of Stablecoin
Stablecoins are a class of digital assets designed to offer price stability by being pegged to another asset’s value. The most popular stablecoins are currently pegged to the U.S. dollar. Stablecoins, as the name implies, are intended to be less volatile than other digital assets and sufficiently stable to enable them to be used in a similar manner to currency.
There are different types of stablecoins that are identifiable based on their underlying collateral structures. They include fiat-collateralized stablecoins, crypto-collateralized stablecoins, commodity-collateralized stablecoins, and non-collateralized stablecoins. Fiat-collateralized coins are pegged to a fiat currency and crypto-collateralized stablecoins are backed by other digital assets. Commodity-backed stablecoins are collateralized using physical assets like metals, oil, or real estate. Non-collateralized stablecoins, or algorithmic stablecoins, use a working, autonomous mechanism to maintain a stable price.
Overview of the Stablecoin Market
Today, there are more than two hundred different types of stablecoins, collectively worth more than $132 billion. The most popular stablecoin is Tether (USDT) with a $79.8 billion market capitalization, followed by USD Coin (USDC) with a $32.4 billion market capitalization, and Binance Coin (BUSD) with a $7.4 billion market capitalization.
President’s Working Group on Financial Markets, FDIC, and OCC Report on Stablecoins
On November 1, 2021, the President’s Working Group on Financial Markets (PWG) - which includes the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission (SEC), and the Chairman of the Commodity Futures Trading Commission (CFTC) - in consultation with the OCC and the FDIC, released a report on stablecoins. The report contained several recommendations, including a proposed federal regulatory framework to address existing and potential risks of stablecoins. The report identified several potential risks, including vulnerability of payment systems, systemic risks to the U.S. financial system, and economic concentration of power. The PWG recommended that Congress act promptly to enact legislation to ensure that payment stablecoins are subject to a federal prudential regulatory framework. Specifically, the PWG recommended that Congress pass a law requiring stablecoins to be issued only by insured depository institutions (IDIs).
Benefits of Stablecoins
As the PWG report notes, “stablecoins are primarily used in the United States to facilitate trading, lending, or borrowing of other digital assets, predominantly on or through digital asset trading platforms.” Because stablecoins serve as an on- and off-ramp and provide protection for individuals during market volatility, they allow individuals to enter and exit the digital asset market without the need to convert their assets back to a fiat currency. If issued under a clear regulatory framework, stablecoins could help provide more efficient retail payments. Stablecoins could be a source of healthy competition in the payments sector and help reach a wider range of consumers.Moreover, stablecoins have the potential to improve the sending and receiving of remittances.
State Regulatory Framework
Each state has a different regulatory framework for stablecoins. Generally, states have concluded that stablecoin issuers are engaged in money transmission activities and require issuers to obtain a license submitting to periodic examinations and take certain actions to safeguard consumers. Most state money transmitter statutes were not drafted to address digital asset businesses. The state regulatory framework imposes significant costs on market participants, who must work with each state regulator to satisfy each state’s regulatory requirements...
