Last week, the House Financial Services Committee conducted a hearing on the role of stablecoins in the global payment systems and the potential need for related legislation and regulation. Cryptocurrency market observers believe there are potential benefits should a bill come to life.
On the other hand, it’s a highly partisan environment on Capitol Hill, and with both parties each controlling one chamber of Congress, bipartisanship is likely needed to advance stablecoin legislation. That is to say, even if practical stablecoin legislation with benefits for investors emerges, some bipartisanship will be required to advance it.
Still, a stablecoin bill would be welcomed because some stablecoins have had surprising bouts with controversy and volatility — the exact opposite of what the asset class is intended for.
“The House Committee’s discussion draft is mostly concerned with digital assets that seem to have a function akin to cash, and which therefore could theoretically extend far beyond the crypto sphere and be used to pay and transact in the real economy. The bill calls these cash-like digital assets ‘payment stablecoins,’ defining them as neither currencies nor securities, but as tokens intended to be used as a means of payment or settlement, and to maintain a fixed monetary value,” noted Moody’s Investors Service.
Owing to the broad expanse and adoption of traditional cryptocurrencies, namely bitcoin and ether, regulatory efforts are emerging in other countries beyond the U.S. However, when it comes to stablecoins, dollar-backed stablecoins account for more than 90% in the market, meaning that the U.S. is the de facto option for regulating the asset class.
“The discussion draft published by the House Committee does not address these alternative models of stablecoins. However, it does contain specific provisions to impose a two-year ban on the issuance of uncollateralized algorithmic stablecoins, which it refers to as ‘endogenously collateralized’ stablecoins,” added Moody’s.
Current regulations pertaining to stablecoins are fractured, to say the least. The Securities and Exchange Commission (SEC) classifies some stablecoins as securities. Others are governed by broader money transfer protocols.
“In that regard, bespoke digital assets regulatory frameworks are essential to fill the gaps, bring clarity on the legal status of these assets, and avoid regulatory fragmentation within the industry,” concluded Moody’s.
Bottom line: Stablecoin legislation that doesn’t threaten innovation in the broader digital assets space is likely to be welcomed by market participants, particularly if it’s easy to comprehend.
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