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The Senate Banking, Housing and Urban Affairs Committee heard the opinions of several expert witnesses who understand stablecoins. They urged lawmakers to establish a clear regulatory framework, but it seemed impossible to agree on the boundaries.
At the hearing on “Stablecoins: How do they work, how are they used, and what are their risks?” Hilary Allen, Professor of American University Washington School of Law, Alexis Goldstein, Head of Open Market Financial Policy, Jay Massari, Partner of Davis Polk and Wardwell, and Circle Chief Strategy Officer and Dante Disparte, head of global policy, addressed the US senators on some of the risks that stablecoins may pose to the US financial system and how lawmakers deal with the regulatory space.
Goldstein’s written testimony include She believes that decentralized finance or DeFi projects “know your customers”, anti-money laundering, combating terrorist financing, and current U.S. sanctions are “largely non-compliant”. She said that because “there are almost no KYC/AML checks in DeFi applications,” stable currencies like Pax Dollar (USDP) can be used to convert ransomware payments from one cryptocurrency to another.
Massari Add to U.S. legislators may consider allowing stablecoin issuers to operate under the Federal Charter, rather than requiring them to become insured depository institutions such as banks. According to Massari, Regulated stablecoin issuer Banks similar to FDIC insurance are “infeasible” and “unnecessary”. She said that these companies have been able to limit the risk of their stablecoin reserves to “short-term liquid assets and require that the market value of these reserves be no less than the face value of the stablecoins issued.”
Massari said: “A new and well-designed Federal Charter can be adapted to a business model. The premise is to issue stablecoins that are fully supported by short-term liquid assets and related payment services.” “The charter can set requirements on the composition of reserve assets. At the same time, the leverage ratio or risk-based capital requirements and other requirements are adjusted according to the nature of the business model. It can restrict stable currency issuers from engaging in riskier activities in order to minimize other requirements for reserve assets.”
In contrast, Disparte-the only witness who has a direct connection with the issuer of the stablecoin- used Some of his written testimony highlighted use cases surrounding digital assets, including empowering women and minority entrepreneurs and providing assistance.Although he did suggest to change the method Stablecoins may need regulation, The primary task of legislators should be to “do no harm” and encourage innovation.
“I think we are winning [the digital currency] As free market activities that occur within the scope of U.S. regulation compete with the sum of digital currencies and blockchain-based financial services,” Disparte said. “The sum of these activities is advancing America’s broad economic competitiveness and national security interests. “
related: “DeFi is the most dangerous part of the crypto world,” Senator Elizabeth Warren said
Not all witnesses who appeared before the committee were so optimistic.Allen Say Stablecoins may pose a “real threat” to the United States’ financial stability. In her view, the asset class may eventually grow enough to replace enough U.S. dollars, thereby limiting the Fed’s ability to deal with inflation.
“Private-sector institutions-who have no right to serve the public interest-will usurp control of the money supply and weaken the central bank’s ability to control inflation or address deflation,” Allen said. “This is another reason to avoid policies that encourage the growth of stablecoins.”
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