The debate between state and federal regulation took center stage in the United States House of Representatives’ hearing on stablecoins held on May 18. Five experts were called to testify before the House Committee on Financial Services’ new Subcommittee on Digital Assets, Financial Technology and Inclusion regarding two proposed bills that aim to regulate stablecoins.
The hearing considered two draft bills, with the Republican bill published in April and the Democratic bill preserving access to regulation in federal hands. Supporters of the Republican bill argue that it would prevent a “race to the bottom” of regulation, while Democrats disagreed. Current regulations were deemed unsuitable for stablecoins and require a “floor” mechanism for federal involvement in stablecoin regulation to set minimum standards.
Matt Homer of venture capital firm XYZ pointed out that offshore issuers are free to create dollar-backed stablecoins as U.S. issuers and stressed the need for the U.S. to regulate it on its own terms. In contrast, Rep. Brad Sherman claimed that a dollar-backed stablecoin would compete with the fiat dollar and undermine it, tearing down the effectiveness of U.S. sanctions.
The CEO of USDF Foundation, Robert Morgan, spoke in favor of the current regulatory structure and highlighted the advantages of tokenization for traditional banks. Nonetheless, it is agreed that stablecoins will continue to happen, and it is crucial for the U.S. to provide certainty for developers who might otherwise flee the country to find regulatory certainty.
In conclusion, the debate over state and federal regulation showed that current regulations are not suited for stablecoins. With both sides advocating for some involvement by either state or federal entities, the answer lies in a middle road.