Straight to the US House Hearing: The Stablecoin Report of the President's Financial Markets Task Force Is Criticized

On Tuesday morning ET, the U.S. House Financial Services Committee held a hearing entitled "The Future of Digital Assets and Finance: The President's Working Group on Financial Markets (PWG) Report on Stablecoins", the U.S. Treasury Undersecretary for Domestic Financial Affairs Nellie Liang attended the meeting as a witness.

There was no specific legislation for the hearing, which was aimed at better understanding the risks that might be seen in stablecoin development and what regulatory framework would best address them. Lawmakers discussed whether regulation of stablecoins and digital assets should be enforced at the state or federal level, but failed to reach a consensus. The BitTweet editorial team walks you through key takeaways from the hearing.

First, to understand the background of this meeting, PWG's stablecoin report made three key recommendations:

To address operational risk, all stablecoin issuers should be insured depository institutions (IDIs)


To address payment system risks, federal regulators should oversee custodial wallet providers


Issuers and wallet providers should have limited connections with commercial entities to address systemic risk, and regulators can enforce interoperability standards.

[Rep Maxine Waters: There are a lot of stablecoins that don’t have all the reserve assets to back them up]

In her opening remarks, Rep. Maxine Waters (CA-43) discussed the potential risks of stablecoins to the economy and community, while also highlighting the opportunities it presents to the financial system. “Investigations have shown that many of these so-called stablecoins are not actually backed by full reserve assets,” Waters said. “And, due to speculative trading and inadequate investor protection, stablecoins may even threaten our financial stability.”

[Congressman Warren Davidson: Tether is a ticking time bomb]

U.S. Congressman Warren Davidson talked about the financial risks posed by stablecoins, Davidson said: “Tether is a ticking time bomb. It has no transparency or disclosure. They admit they have commercial paper, but they don’t reveal what exactly. That’s what I think A framework for mandatory disclosure does provide where investor protection is." Davidson said USDC, the second-largest stablecoin by market capitalization, is a “highly regulated asset.” He also criticized the PWG report, calling it a "concept of big bank protection".

[Republican lawmakers oppose federal regulation]

Republican representatives Patrick McHenry and Wagner emphasized that state regulators’ existing experience in overseeing stablecoins should be considered and possibly leveraged. Patrick McHenry hinted that U.S. regulation of stablecoins with a “single regulator at the federal level” could fail. Rep. Jake Auchinclos (D-Mass.) said he doesn’t understand why stablecoins must be subject to federal insurance regulation when they are “constrained by the crypto economy.”

Nellie Liang responded that there are separate regulations for issuers and custodial wallet providers, but the lack of overall oversight of the payment system creates risks. She also noted that laws vary from state to state, adding complexity that hinders innovation.

[Nellie Liang: Tech companies should not be allowed to issue cryptocurrencies as payment tools]

Nellie Liang, the U.S. Treasury Undersecretary for Domestic Financial Affairs, told the hearing that stablecoins could have far-reaching effects on the financial system and the economy, but they also pose a threat: "Stablecoins also raise policy issues, including with illicit financial, user issues related to protection and systemic risks. To mitigate these risks while supporting the potential benefits of innovation, the Treasury believes that the regulation of stablecoins should be clear and consistent.” Rep. Maxine Waters asked about Facebook's Libra (later Diem) project and expressed concern about the amount of sensitive personal data the companies could access. Nellie Liang said that tech companies should not be allowed to issue cryptocurrencies as payment instruments, saying “the U.S. President’s Working Group on Financial Markets (PWG) report believes that a more consistent and less fragmented regulatory framework is preferred”.

[Nellie Liang: Stablecoins can form the cornerstone of payment systems]

Nellie Liang said that if stablecoins are backed by high-quality assets and have low risk, they can be used as the cornerstone of payment systems. Rep. Patrick McHenry pointed out that the President's Working Group on Financial Markets (PWG) report did not mention any state regulatory frameworks, and Liang said: "The main reason is that the U.S. national regulatory system is fragmented and has no unified oversight."

[Nellie Liang: Stablecoin is a bank-like product and an investment-like product]

“[Stablecoins] are bank-like products and investment-like products, which is why we believe there is a regulatory loophole,” Nellie Liang said at the hearing. Asked by Rep. Bill Huizenga (R-Mich.) why the Presidential Working Group on Financial Markets (PWG) report did not do any analysis of whether stablecoins might fall under securities law or a policy issue under securities law, Liang said the group is focused on bringing stablecoins to bear. coin as a payment tool and trying to "identify the regulatory gap" with that particular use case. Huizenga said it was unclear how stablecoins would be subject to securities laws: “If we don’t have a clear picture, why don’t you guys do this analysis”? Liang responded that she would follow the advice of the U.S. Securities and Exchange Commission (SEC).