One of the Senate’s top Republicans believes that stablecoin regulation can still happen this year.
Pennsylvania’s Pat Toomey, the top Republican on the Senate Banking Committee, said that he believes Congress can get together on a bill that would at least prevent a repeat of the $48 billion collapse of the Terra/LUNA algorithmic stablecoin in May, which suffered a bank-run style collapse in just a week. Efforts to pass similar legislation in the House have faced repeated setbacks.
See also: $45B Stablecoin Rout Confirms Worst Fears about Crypto’s Need for Reserves
Speaking on the eve of Thursday’s (Sept. 15) Security and Exchange Commission (SEC) oversight hearing before that committee, Toomey told Bloomberg’s “Odd Lots” podcast that “the fact that there was a sort of sensational bad event did move this up the list of priorities — put it on people’s radar, who didn’t have it on their radar.
“I still think there’s a chance to get stablecoin legislation done this year. I think the administration would like to get something done.”
The core goal of such legislation would be to effectively ban algorithmic stablecoins, which maintain their dollar peg via a variety of arbitrage mechanisms while backing reserves of cryptocurrency in favor of those like the Circle-issued No. 2 stablecoin USDC, which relies on reserves of dollars and highly liquid investments like short-term U.S. Treasuries.
The No. 1 stablecoin, Tether’s USDT, is eliminating some of its less liquid investments in favor of T-bills.
The Terra/LUNA collapse and subsequent wave of bankruptcies by crypto lenders like Celsius and Voyager Digital, which has left hundreds of thousands of investors in limbo and likely to lose at least some of their funds, had boosted hope among Senate Banking Committee and House Financial Services Committee leadership that stablecoin legislation could be pulled out.
Learn more: Stablecoin Collapse Sent Voyager Digital and Celsius on Different Paths to Bankruptcy
Toomey, who broadly supports a light-handed approach to crypto regulation, has said that such legislation should “require that you’d have to be licensed to issue it, and … how you could go about obtaining such a license.” It should require issuers to back their holdings with cash or cash-equivalent assets that are subject to regular auditing and reporting.
A pair of stripped-down bills before the House and the Senate would simply cover that. However, the chair of the House Financial Services Committee, Rep. Maxine Waters (D-Calif.), and Rep. Patrick McHenry (R-N.C.) have tabled more complex legislative goals repeatedly — most recently on Sept. 4 — after failing to overcome partisan differences.
Related: US Stablecoin Bill Hits a Snag as Negotiations Break Down
Broader Crypto Impasse
Congress has largely given up on passing a broader cryptocurrency regulation bill this year. While there is a bipartisan bill pending in the Senate — Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.)’s “Responsible Financial Innovation Act” — it involves more complex questions, including which cryptocurrencies are considered securities and which agency would have oversight of them.
The Biden administration, meanwhile, hasn’t laid out its own agenda for a regulatory regime it called for under an executive order in March. That is expected this month and no serious debate can begin until that happens, but hopes for any action this session are growing dimmer as potentially divisive midterm elections loom in November.
Read more: Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins
Those broader disagreements surfaced in Thursday’s Senate Banking Committee hearing, when Lummis asked SEC Chairman Gary Gensler about the disclosure requirements for launching new cryptocurrencies that are securities — something she and Gillibrand have said a fair number of cryptocurrencies likely are, though not as many as Gensler, who has called everything but bitcoin a security.
Lummis said the disclosure requirements for initial cryptocurrency offerings (ICO) — which effectively ended several years ago when the SEC cracked down hard, imposing fines and requiring some ICO launchers to cancel their sales and repay investors — should be the responsibility of the initial issuer.
Gensler disagreed, saying, “The sponsors, the entrepreneurs, the promoters — that’s where the disclosure obligation ought to be.”
Speaking on the Bloomberg podcast, Toomey stuck to the party line, criticizing the SEC’s efforts at regulation as “capricious and ineffective,” saying they were stifling innovation and hurting American consumers.
For his part, Toomey said he does not believe that nearly as many cryptocurrency tokens are securities.
“There may be some tokens that do, and OK, I’ll call them a security,” he said. “But when there is no claim on an issuer, when there is no built-in return, then I’m not sure it should even pass” the definition of a security.
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