Currently, Democrats are divided on whether the Biden Administration or Congress should be directly addressing stablecoin regulation, as questions surrounding whether the dollar-pegged asset should fall under the umbrella of existing rules or whether new regulations are necessary?
Since October 2021, stablecoins have grown approximately 500%, according to the Biden Administration. Despite the bipartisan consensus regarding the need for federal intervention in the stablecoin market, lawmakers are playing a guessing game as to when to intervene.
“This is a relatively narrow segment of the crypto universe and it would be very constructive if we provided some regulatory certainty and clarity,” said Senator Pat Toomey (R-PA), a seasoned member of the Senate Banking Committee. Sen. Toomey has continued to advocate for regulation via banks to address the current issues associated with stablecoins.
Sen. Toomey’s proposed bill
Last week, the Senate Banking Committee released a draft bill, where Toomey 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.
By allowing stablecoin issuers to operate according to state rules, Sen. Toomey believes this would address many of the industry’s concerns, specifically the recent actions of the CFTC against Tether.
Democrats hesitate to legislate stabelcoins
However, some Democrats are hesitant to be proactive in addressing this type of legislation, preferring to pass a bill that addresses the wider range of regulatory issues related to cryptocurrency, according to the Wall Street Journal.
In the absence of any congressional action, the Biden administration said that it would encourage Treasury Secretary Janet Yellen’s Financial Stability Oversight Council to recognize elements of stablecoin processing as being systemically important for the stability of financial markets. Ultimately, this could result in tighter oversight of stablecoin assets, which some Democrats prefer to the legislative structures that currently have bipartisan support.
Senator Sherrod Brown (D-OH), chairman of the Senate Banking Committee believes that the Biden administration should continue under its own authority.
However, Rep. Ritchie Torres (D-NY), disagrees, stating his preference for congressional legislation:
“The lack of congressional action has left behind a power vacuum that regulators like the SEC are trying to fill and without a congressional statute, the regulations could vary widely from administration to administration,” he said.
Delays could hurt Democrats
Last month’s executive order from the 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.
With a president who has a disapproval rating below 50 percent in the Marist poll, losing 37 House seats could be detrimental for the upcoming November election, if Democrats fail to act on stablecoin regulation.
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