A top Republican in the House of Representatives said any Congressional work on cryptocurrency regulation would likely begin with the $127 billion industry of stablecoins.
“I think stablecoins are the soft entry point here by which we can build consensus on a bipartisan way [to] create law,” said Rep. Patrick McHenry (R-N.C.), the top ranking GOP member of the House Financial Services Committee.
Stablecoins are types of crypto assets that bill themselves as a convenient means for payment; stablecoins like Tether and USD Coin pin their values to the U.S. dollar (i.e. at a 1:1 conversion). Whereas bitcoin and other unbacked cryptocurrencies fluctuate in value, stablecoins allow users to make transactions with others without the concern that the value of that coin will be dramatically different the next day.
In the next generation of the internet (web3), stablecoins could become a primary means by which people transact digitally.
For lawmakers, the challenge lies in ensuring that stablecoin issuers are sufficiently reserved to deliver the promised 1:1 exchange rate.
McHenry and other members of the House Financial Services Committee probed several business leaders in the crypto world on Wednesday. The interest in making federal changes to the law to ensure the safety of stablecoin usage appeared to be a bipartisan issue.
“We need to have, at the federal level, changes in law in order for stablecoins to be in the marketplace,” McHenry told Yahoo Finance Thursday.
Stablecoin issuers agree, too.
“We wholeheartedly support this effort, and believe that there can be very strong non-partisan support for national licensing and Federal supervision of this highly strategic financial market infrastructure,” said Circle CEO Jeremy Allaire in testimony on Wednesday. Circle is the issuer of USD Coin.
In the universe of crypto regulatory matters, stablecoins appear to be the main priority for financial regulators.
The President’s Working Group on Financial Markets, a coalition of financial regulators headed by the U.S. Treasury, issued a report in November recommending that stablecoins essentially be regulated as banks.
“[L]egislation should limit stablecoin issuance, and related activities of redemption and maintenance of reserve assets, to entities that are insured depository institutions,” the report reads. “The legislation would prohibit other entities from issuing payment stablecoins.”
McHenry said more hearings in the future could come, as lawmakers on both sides of the aisle try to approach possible legislation.
“Not all stablecoins are made the same, but we need to make sure they have appropriate capitalization, appropriate regulation for us to get the full benefit out of the entry point to web3,” McHenry told Yahoo Finance.