Stablecoins Experience 500% Growth Since 2021; Democrats Need to Act

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Currently, Democrats are divided on whether a Biden administration or Congress should directly address stablecoin regulation, around whether dollar-pegged assets should be covered by existing rules or whether new regulations are necessary?

According to data from the Biden administration, stablecoins have grown by about 500% since October 2021. Despite bipartisan consensus on the need for federal intervention in the stablecoin market, lawmakers are playing a guessing game about when to intervene.

“This is a relatively narrow part of the cryptocurrency world, and it would be very constructive if we provided some regulatory certainty and clarity,” said Sen. Pat Toomey (R-PA), a senior member of the Senate Banking Committee. Senator Toomey continues to advocate for regulation through banks to address current issues associated with stablecoins.

Bill introduced by Senator Toomey

Last week, the Senate Banking Committee released a draft bill, and Toomey said he wanted stablecoin issuers to have clear redemption policies and implement disclosure mechanisms around reserve asset backing. He also advised issuers to meet liquidity and asset quality standards.

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By allowing stablecoin issuers to operate under state regulations, Senator Toomey believes it will address many of the industry’s concerns, particularly the CFTC’s recent action against Tether.

Democrats Hesitate About Stablecoin Legislation

However, according to The Wall Street Journal, some Democrats are reluctant to proactively address such legislation, preferring to pass a bill that addresses broader regulatory issues related to cryptocurrencies.

In the absence of any congressional action, the Biden administration said it would encourage Treasury Secretary Janet Yellen’s Financial Stability Oversight Committee to recognize that elements of stablecoin processing are systemically important to the stability of financial markets. Ultimately, this could lead to tighter oversight of stablecoin assets, with some Democrats preferring the current legislative structure with bipartisan support.

Sen. Sherrod Brown (D-OH), chairman of the Senate Banking Committee, believes a Biden administration should continue to operate under its own authority.

However, Rep. Rich Torres (D-NY) disagreed, saying he preferred congressional legislation:

“The lack of congressional action has left a power vacuum that regulators like the SEC are trying to fill, and without congressional regulation, regulation could vary from government to government,” he said.

Delays could hurt Democrats

The government’s executive order last month asked agencies to review areas that need new legislation to improve the handling of digital assets.

Given that some of these reviews could take months, lawmakers predict that Congress won’t take any major action on cryptocurrencies until next year — an action that could hurt Democrats in the upcoming midterm elections.

With a president with a disapproval rating below 50% in the Marist poll, losing 37 House seats could be bad for the upcoming November election if Democrats fail to act on stablecoin regulation.

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