Stablecoin legislation starts to take shape
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The stablecoin economy has bipartisan support, with the backing of significant leaders from both parties. It seems the only question now is how tight regulation is going to be.
Why it matters: Stablecoins power trillions of dollars worth of transaction volume annually on blockchains, which has made the U.S. dollar the universal coin of the realm.
- Regulating stables has been top of the agenda for years for U.S. policy makers, who've warned of a range of risks from market integrity, to criminal use, to liquidity issues that could cascade into chaos in the broader financial system.
Driving the news: House Financial Services Committee ranking member Maxine Waters (D-Calif.), put out a discussion draft of stablecoin legislation yesterday.
- This follows legislation introduced last Tuesday by Sen. Bill Hagerty (R-Tenn.) and another discussion draft two days later from House Financial Services Chair French Hill (R-Ark.) and Rep. Bryan Steil (R-Wisc.).
The big picture: The three legislative efforts this month all create legal means for banks and other financial firms to launch stablecoins backed by dollars and other highly liquid, super safe instruments, such as short-term treasuries.
Between the lines: Where they differ is around governance. In Waters' bill, the Feds have at least one hand on the leash.
- The bills from the GOP leave more room for state regulators. Hill's and Steil's draft gives states the most room to move.
- Hagerty's bill has flexibility around smaller stablecoins, those with a market cap below $10 billion. Only the two big stablecoins — Circle's and Tether's — are bigger than that.
Zoom out: All the bills make it pretty clear that deposits made for stablecoins need to be used strictly for keeping the stablecoins solvent. No side bets with them or other monkey business!
Where things stand: Hagerty's bill is the only one that's been introduced, and it's got co-sponsorship from crypto champion Sen. Cynthia Lummis (R.-Wyo.) and Senate Banking Chair Tim Scott (R-S.C.).
What we're watching: In her announcement, Waters made it clear that she sought to crack down on tether (USDT), the world's largest stablecoin. Her legislation forbids the sale to U.S. citizens of stablecoins that haven't met the legislation's requirements.
- Both GOP bills, by contrast, seek to set up reciprocal arrangements with other governments that have their own way of regulating stablecoins. Tether's token, USDT, is licensed in El Salvador, according to the company CEO.
- That said, the GOP bills have other compliance requirements that, right now, Tether's USDT doesn't meet.
Go deeper: Legislators push to move crypto laws within Trump's first 100 days
