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July 28, 2022

Congress Pushing the U.S. Stablecoins Bill Until After the August Break

After the August vacation, bipartisan legislation to provide a regulatory framework for stablecoins in the United States will be considered.

Rep. Maxine Waters (D-CA) issued the following statement: “Although the Ranking Member, Secretary Yellen, and I have made significant progress toward a compromise on the legislation, we are regretfully not there yet and will continue our conversations over the August vacation.”

She continued, “It is crucial that we continue to advance in this area so that we can have a regulatory framework that protects consumers while permitting responsible innovation.”

The measure was likely to advance yesterday as a result of bipartisan collaboration between waters and Representative Patrick McHenry (R-NC). The bill would purportedly require stablecoin issuers, such as Tether and Circle, to keep 1:1 reserves of their stablecoins in circulation and restrict the sorts of assets that might be used to support these stablecoins.

The delay is a result of rumors that Treasury Secretary Janet Yellen expressed reservations about the draft legislation’s treatment of difficulties regarding the custody of digital assets.

Rep. Waters highlighted the risks of stablecoins during a hearing in February 2022, noting that “investigations have revealed that many of these so-called stablecoins are not, in fact, fully backed by reserve assets” and that speculative trading and a lack of investor protections “could even threaten U.S. financial stability.”

Following the demise of the algorithmic stablecoin UST earlier this year, the planned regulation of stablecoins has taken on a new sense of urgency.

Yellen expressed an “urgent” plea for stablecoin regulation this year at the time. She stated that the run on UST “illustrates that this is a quickly expanding product with rapidly expanding dangers” and that “digital assets may pose hazards to the financial system, necessitating heightened and coordinated regulatory attention.”

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In comments to Congress days later, however, Yellen agreed that stablecoins have not yet reached a size “where they are financial stability issues,” saying that the cryptocurrency sector does not yet constitute a “systemic risk.”