Controversy continues at the stablecoin hearings, and the USD duo runs counter to each other
Last week, the encryption industry ushered in the first congressional hearing "Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States," chaired by House Financial Services Committee Chairman Maxine Waters , the more than 50 members of the committee participated in full, and had the opportunity to express their own views on the encryption industry and regulation. Representatives of crypto businesses at the hearing, made up of executives from Circle, FTX, Bitfury Group, Paxos, Stellar and Coinbase, defended the industry and explained to lawmakers the promising future of crypto.
After the hearing, many members of the crypto community felt that lawmakers were much less hostile to cryptocurrencies than in the past, and the friendly tone between executives and lawmakers surprised people through the online live broadcast. “It’s so exciting that members of Congress are very receptive,” Sam Bankman-Fried, FTX’s chief executive, said in an interview.
As a continuation of Congress’ conversations with the crypto industry, the Senate Banking, Housing and Urban Affairs Committee held a hearing on stablecoins yesterday, with committee chair Sherrod Brown and Senator Patrick J. Patrick J. Toomey, with the theme "Stablecoins: How do they work, how are they used, and what are their risks?".
Those present at the hearing are:
- Alexis Goldstein, director of financial policy at the Open Market Institute.
- Jai Massari, crypto-industry-savvy attorney and partner at Davis Polk's Financial Institutions Group.
- Dante Disparte, chief strategy officer and head of global policy at stablecoin issuer Circle.
- Hilary J. Allen, Professor, American University Washington School of Law.
The focus of this hearing revolves around stablecoin security and legality. As committee chair Sherrod Brown noted in his opening remarks, as the crypto market continues to grow, recently surpassing a total market capitalization of $3 trillion, this large number holds great promise. However, the wild price swings and high transaction fees of many cryptocurrencies make them unusable for payments, a problem that stablecoins should solve. Proponents of cryptocurrencies argue that stablecoins are superior to real dollars because they are decentralized and transparent, but I think stablecoins are neither.
Last month, the Banking Commission sent letters to a number of stablecoin issuers, including Coinbase, Gemini, Circle, Paxos, TrustToken, Centre, Binance US and Tether. In the letter, the committee asked issuers to provide data on stablecoin purchases, minting processes, limits, and issuance and redemption, summarizing their companies’ redemption mechanisms (including their conversion into U.S. dollars).
At the hearing, Brown revealed that the answers from the stablecoin issuers were not very clear, making lawmakers unable to believe that most ordinary customers can get more protection after purchasing stablecoins.
"Cryptocurrencies may crash nearly 30% as the crypto market crashes. One day history tells us we should be worried when any investment becomes so out of touch with reality. Compare that to the stock market crash of 1929. So far, the crypto market What’s been happening in the US has been confined to the crypto market only. We saw this with “Dogecoin,” the ironic cryptocurrency that suddenly gained value when a tech billionaire tweeted about it. Billions of dollars. But stablecoins create a very real connection between the real economy and this new fantasy economy.”
“I have heard many times from experts in the crypto industry not to over regulate, it will hurt innovation, the free market will solve all problems, the United States needs to be globally competitive. However, without order and rules, innovation will only be exposed in potential danger."
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Senator Patrick J. Toomey
As another moderator of this hearing, Toomey's point of view is different from that of the chairman. He believes that stable coins can speed up payments, especially cross-border remittances, they can reduce costs, and they can be recorded through immutable and transparent transactions. Help fight money laundering and terrorist financing.
Toomey agrees that stablecoins need a new regulatory regime, “Stablecoin regulation should be rigorously tailored and harmonized in the U.S. and globally, and, moreover, regulation should seek to maintain U.S. international competitiveness. Regulators should recognize that private offerings A stablecoin won’t undermine the dollar’s international standing, but a well-managed stablecoin can actually support it. Finally, regulation should allow stablecoins to interoperate with the current financial system.”
Before the hearing began, Toomey published the principles of stablecoin regulation on the Banking Commission website, but it was the opposite of the "Stablecoin Regulation Report" released by the President's Financial Market Working Group last month: "The issuance of stablecoins should not Limited to insured depository institutions."
Toomey proposed the following principles, which will influence his upcoming stablecoin legislative framework:
Stablecoin issuance should not be limited to insured depository institutions.
First, stablecoin issuers have a different business model than traditional banks.
Second, requiring all stablecoin issuers to become banks would stifle innovation.
Third, regulation of payment activities should create a level playing field.
Stablecoin issuers will choose from at least three regulatory regimes depending on their business model:
operate under traditional bank charters;
Obtain special purpose bank charters designed for stablecoin providers under new legislation;
Register as a money transmitter under the existing state regime and as a money services business under the FinCEN federal regime.
All stablecoin issuers should adopt clear redemption policies, disclose requirements regarding the assets backing the stablecoin, and possibly meet liquidity and asset quality requirements.
Commercial entities should be eligible to issue stablecoins as long as they abide by these regimes.
Interest-free stablecoins are not necessarily regulated like securities.
Regulation should protect the privacy, security and confidentiality of individuals using stablecoins, including allowing customers to opt out of sharing any information with third parties.
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Jai Massari
Jay Massari, a partner at Davis Polk's Financial Institutions Group, is an attorney proficient in the crypto industry, and she supports sound regulation of stablecoins.
“Stablecoin issuers should be restricted in the types of reserve assets in order to ensure the liquidity of these reserves,” Massari said.
She also noted that issuers should comply with existing federal rules on monitoring and preventing illicit financial activities such as money laundering, and that the opaque nature of the cryptocurrency and decentralized finance (DeFi) markets is a major concern in the space.
The thorny question, however, is whether stablecoin issuers should be regulated as protected depository institutions (i.e., like regular banks), or should be registered under special bank charters tailored to their specific business models. The President’s Task Force on Financial Markets, the Biden administration’s lead on stablecoins, has called for such an approach. But critics of this approach stress that stablecoin issuers fundamentally don’t operate like banks because they aren’t allowed to use leverage to lend funds.
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Dante Disparte
Dante Diparte, chief strategy officer and head of global policy at stablecoin issuer Circle, told lawmakers the role of stablecoins as a payment method is steadily growing, especially among traditional financial institutions. Visa recently enabled USDC settlement, and Circle recently partnered with MoneyGram to process global cash transfers.
Additionally, he believes that decentralized finance (DeFi) will enable faster, cheaper, and more transparent transactions, echoing arguments made at a crypto hearing last week.
"I think that in this new always-on economy, where people can choose how they move their money, that has profound implications for America's national interest and our public interest," Dispat said. "Our financial needs and our money don't Need a bank holiday."
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Alexis Goldstein
Alexis Goldstein, director of financial policy at the Open Market Institute, disagrees that stablecoins can speed up payments, arguing that stablecoins are inefficient at settling payments due to high fees, which is harmful to low-income communities. The impact is disproportionate.
Goldstein cited a recent World Economic Forum report: “Stablecoins are not good for financial inclusion because they face the same or higher barriers than existing financial options, including smartphones requiring the Internet.” People sending [stablecoins] personally and at work, especially when the ethereum blockchain gets congested, it often makes Western Union look cheap."
Any speed advantage is lost every time a user exits a cryptocurrency exchange to transfer coins from one wallet to another or exchange for fiat currency, she added.
Referring to his financial experience in 2007 and 2008, Goldstein said: "I do think the secondary market, especially DeFi, reminds me of the OTC derivatives market in the financial crisis."
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Hilary J. Allen
Hilary Allen, a professor at the American University Washington School of Law, agrees that Massari's stablecoin needs to be properly regulated, though she is an opponent of cryptocurrencies.
She believes that stablecoin issuers should not be regulated like banks, but for different reasons. In her view, treating them like banks would further legitimize stablecoins, and thus the entire DeFi space, which could pose a systemic threat if left unchecked.
“I don’t think DeFi can grow without stablecoins, and at the moment, I think DeFi is contained to the point where it doesn’t affect financial stability. But if it grows, I think DeFi will be a real threat, especially if it’s with us The traditional financial system is intertwined."
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Stablecoin duo have very different journeys
On the same day as this hearing, Circle announced that it had launched the USDC stablecoin on the Avalanche blockchain network. Circle said USDC support for Avalanche could enable more developers to build eco-friendly decentralized finance (DeFi) applications.
USDC is currently deployed on Ethereum, Solana, TRON, Stellar, Avalanche and Hedera blockchain networks.
At the hearing, Circle’s Dispat joined Massari’s lawyers in proposing a stablecoin regulatory framework that would limit the types of reserve assets that stablecoin issuers could hold and would establish a minting and redemption system. Back to a general system of stablecoins.
Also on the same day, Tether, the issuer of the stablecoin leader USDT, faced a class action lawsuit.
According to official documents, two plaintiffs, Matthew Anderson and Sean Dolivka of the U.S. District Court for the Southern District of New York, accused Tether of misleading consumers about the attributes of USDT tokens; Misrepresentation” that USDT is not exactly a stablecoin, nor is it backed one-to-one with the U.S. dollar; also accused Tether of maintaining a cash reserve of less than 4%, and despite promising to be transparent to consumers, it has not been professionally audited. It also claims that Tether breached the contract, which makes plaintiffs and members eligible for "compensatory and consequential damages."
In response, the Tether company slammed the lawsuit, which it called "nonsense" and a "copycat," which was brought by the two plaintiffs and their law firms, who wanted to defend "unsubstantiated claims." Make huge compensation.
Tether is often sued for mismanaging funds and misleading users about its USDT reserves. In early September this year, the U.S. District Court for the Southern District of New York dismissed a class action lawsuit consisting of five cryptocurrency traders, accusing Tether of being deceptive, market manipulative, and anti-competitive, leading to the purchase of tokens at high prices in 2017. economic loss after currency.
It is worth noting that Tether did not attend last week's cryptocurrency hearing and this stablecoin hearing.
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.
risk warning:
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Participate in any illegal financial practice.
