Stablecoins have grown over 500% since October 2021, according to the Biden Administration. Now a bipartisan question arises about the need for government intervention in the stablecoin market. However, opinions are still very divided as to when and how this should be done.
Currently, Democrats are divided on whether the Biden administration or Congress should directly address the regulation of stablecoins, as the question is whether the dollar-linked asset should fall under the umbrella of existing regulations or whether new regulations are needed.
Disagreements on stablecoin regulation
Last week, the Senate Banking Committee released a draft bill, where Pat Toomey, a seasoned member of the Senate Banking Committee, stated that he wants stablecoin issuers to adopt clear redemption policies and implement disclosure mechanisms surrounding reserve asset backing. He also recommends that issuers meet liquidity and asset quality standards and by allowing stablecoin issuers to operate according to state rules. He believes this would address many of the industry’s concerns, specifically the recent actions of the CFTC against Tether. Senator Toomey continued to advocate for bank regulation and commented on the current issues:
“This is a relatively small segment of the crypto universe, and it would be very constructive if we provided some regulatory certainty and clarity.” – Pat Toomey, US Senator for the state of Pennsylvania
On the other hand, Democrats are reluctant to proactively address this type of legislation. According to the Wall Street Journal, they’d prefer to pass a bill that addresses a broader range of regulatory issues related to cryptocurrencies. In the absence of congressional action, the Biden administration said it would encourage Treasury Secretary Janet Yellen’s Financial Stability Oversight Council to recognize elements of stablecoin processing as systemically important to the stability of financial markets. Ultimately, this could lead to stricter oversight of stablecoin assets, which some Democrats prefer to the legislative structures currently supported by both parties.
Delay of the measures
Last month’s executive order from the Biden Administration requested that agencies review areas in which new legislation was needed to improve the handling of digital assets. Given that some of those reviews could take months, lawmakers predict that Congress won’t take any major action regarding cryptocurrency until next year – an act that could hurt Democrats in the forthcoming midterm elections.
“President Biden’s historic Executive Order calls for a coordinated and comprehensive approach to digital asset policy. This approach will support responsible innovation that could bring significant benefits to the nation, consumers, and businesses. It will also address risks associated with illegal financing, protect consumers and investors and prevent threats to the financial system and the broader economy.“ – Janet Yellen, U.S. Treasury Secretary