State vs. federal regulation was a key issue at the May 18 US House of Representatives hearing on stablecoins. The House Financial Services Committee's newly formed subcommittee on digital assets, financial technology and inclusion heard the testimony of five experts as it con sided two proposed bills to regulate stablecoins.
The subcommittee is considering two draft bills. The Republican bill was released in April ahead of a Financial Services Committee hearing on stablecoins. Ranking member Maxine Waters later introduced a competing draft based on a bill that was introduced in the last session of Congress but failed.
"Race to the bottom" is the biggest divergence in national stablecoin regulation. The Republican bill would allow stablecoin operators to choose the states in which they register without going through the Federal Reserve. Supporters of the bill argue that floor rates would prevent a race to the bottom and reflect the two-tiered federal/state banking regulatory system in the United States. Democrats are not convinced. The Democratic bill retains regulatory power in the hands of the federal government through an appropriate regulatory agency. David Portilla, a partner at Da vis Polk & Wardwell, favors a middle way. He said:
“Federal regulation of stablecoin issuers would provide more uniform, consistent rules, while state regulation could foster more diversity and innovation in regulation and regulation. The answer to this question is not necessarily binary.” In any case, current regulations are not suitable for stablecoins , he said. In addition to the “floor” mechanism for federal involvement in stablecoin regulation to set minimum standards, there could be a “toggle” based on the size of the problem, he said. The Republican bill would impose the same regulation on all issuers, regardless of size. The national interest came up repeatedly, with an ardent opponent of cryptocurrencies, Rep. Brad Sherman, claiming that a dollar-backed stablecoin would compete with and weaken the fiat dollar, reducing the effectiveness of US sanctions.
Matt Homer, another stakeholder at venture capital firm The Department of XYZ, said, “Stablecoins are going to come out whether we want them to come out or not,” adding, “Offshore issuers are as free as they are in the US to create dollar-backed Issuers. We should have it done in the US so we can regulate it on our own terms.” Pro-cryptocurrency lawmaker Warren Davidson echoed Homer’s claims, saying:
“Often, they [stablecoin developers] are fleeing our shores in search of certainty. So it would be great if we provided some.” USDF Consortium CEO Robert Morgan favored the current regulatory structure and spoke about the advantages of tokenizing traditional bank s. He described tokenization as a "third way."
