The House Financial Services Committee will meet this week to discuss and amend legislation meant to provide regulatory clarity for stablecoins and other digital assets.
The committee will hold a markup on Thursday morning to debate a tranche of House resolutions related to cryptocurrency and crypto regulation. The meeting is highly anticipated as the threat of federal regulation casts a shadow over myriad digital assets.
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One piece of legislation would establish some federal regulatory oversight for stablecoins, a form of cryptocurrency that ties their value to an underlying asset, such as gold or fiat currency. Stablecoins typically don’t fluctuate in value wildly — as some cryptocurrencies, such as bitcoin, have — because they are asset-backed.
The bill has been tweaked and changed recently in the lead-up to Thursday’s markup. The latest version would reportedly set up a federal regulatory structure while still assigning a role to individual states.
The legislation in question, which is still under debate and subject to revision, applies to payment stablecoins and would define what assets can be used to back stablecoins (for instance, gold or U.S. dollars).
It also mandates that stablecoin issuers submit certificates to either state or federal regulators with information about their coins and sets parameters for banks issuing stablecoins. Additionally, it establishes capital requirements for stablecoin issuers.
Republicans on the committee, including Chairman Patrick McHenry (R-NC) and digital assets subcommittee Chairman French Hill (R-AR), have been working with Democrats on the legislation, according to Politico.
A big holdup in the process has been the exact role of the federal government versus state regulators. Democrats, such as the committee’s ranking member Maxine Waters (D-CA), have pushed for more involvement by the Federal Reserve in the draft legislation, which gives state regulators the power to approve nonbank stablecoin companies.
“The Feds have got to be involved,” Waters told Punchbowl News.
Stablecoins have become increasingly targeted for regulation. The matter was illustrated by the 2022 collapse of stablecoin TerraUSD, which caused a chain reaction wiping out some $40 billion in crypto market value.
To understand stablecoins and the need for regulation better, David Sacco, an instructor in finance and economics at the University of New Haven’s Pompea College of Business, compared the concept to money market funds.
“People look at money market funds as being these very stable places to put their money because there are regulatory requirements in terms of what money market funds can hold — so that if, in the worst case, everybody went to liquidate at once, you could be pretty confident that it would be an orderly liquidation and people could get their return back,” he told the Washington Examiner.
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“And I think that’s basically what they are trying to propose for stablecoins,” he added.
The markup on the stablecoin legislation will be held on Thursday at 9 a.m. Eastern time and will feature a debate over the legislation and votes on amendments.