Jul 20, 2022 - Economy

House committee vote on stablecoins likely next week

House Financial Services Committee Chair Maxine Waters (D-CA) talks with Facebook co-founder and CEO Mark Zuckerberg after he testified to the committee, October 23,2019.

House Financial Services Committee chair Maxine Waters (D-Calif.) talks with Facebook's CEO Mark Zuckerberg after he testified to the committee in October 2019. Facebook's Libra initiative is widely credited with igniting legislators' interest in cryptocurrency. Photo: Chip Somodevilla/Getty Images

The chair of the House Financial Services Committee, Maxine Waters (D-Calif.), is working on legislation with Rep. Patrick McHenry (R-N.C.) that would create a legal framework for stablecoins, cryptocurrencies that function just like others, but without the price volatility.

Driving the news: This stablecoin legislation is likely to receive a vote in Waters' committee next week, putting it before Speaker Nancy Pelosi ahead of the House going on recess at the week's end, a source familiar with the matter tells Axios.

  • Specifically, the legislators are said to be focused on stablecoins that maintain a peg with the dollar by backing it with actual currency or other non-volatile assets.

Why it matters: Stablecoins may be of particular interest to governments because they stand the best chance of disrupting fiat currency as a medium for payment, which may be why governments of the world have been so intent on regulating this particular kind of token.

Be smart: Stablecoins are seldom used for payments. Their main users are crypto traders, because stablecoins (such as tether and USD coin) give them a way to lock in gains after they make a smart bet.

  • Satoshi Nakamoto introduced Bitcoin as a "peer-to-peer electronic cash system," but it has never really worked that way. Retailers don't want to accept payment in a currency whose value can change quickly.

What we're watching: The source tells Axios that we could look for a bill that does basically what one might expect such legislation to do. Such as:

  • Prudential standards. This would define how they would be supervised and how much capital they need on hand for each token.
  • Asset rules. This would define what sorts of assets could be used to back stablecoins (cash versus treasuries versus commercial paper versus debt, for example).
  • Authorization. The door is likely to be left open for certain kinds of financial companies to offer stablecoins, beyond just banks. However, it's likely to discourage or even forbid more commercial companies (such as non-financial tech giants) from offering stablecoins. That squares with a previous report, featuring Rep. Jim Himes (D-Conn.).

Staff at the House Financial Services Committee did not reply to a request for comment from Axios.

Zooming out: Two other sources familiar with the legislation tell Axios that this outline is generally correct, but added that everything has been very much in flux and many leaders in Washington are trying to weigh in right now.

What we're watching: Whether the legislation will offer a way forward for only the most conservative stablecoins, or go further and undermine — or even forbid — more exotic stablecoins as well.

Flashback: In November 2021, regulators wrote a report urging Congress to pass legislation that gave regulators clear authority over stablecoin issuance.

The bottom line: What's important here may be less what's in the legislation and more the fact that it represents a bipartisan determination to get serious about legislating around this industry.

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