The race for crypto regulations in the United States has been catching momentum bolstered by a letter from a leading lobby group to the House Financial Services Committee Chair, Patrick McHenry (R-N.C.).
The same letter was sent to another high-ranking member Maxine Waters (D-Calif.) before the scheduled momentous crypto hearing.
Key industry leaders and crypto giants like Ripple, Grayscale, Kraken, and Anchorage Digital are some of the members of the Blockchain Association.
The crypto lobby group insists that it is about time Congress gives regulations, particularly for stablecoins the priority they deserve.
“There’s pretty much a bipartisan, bicameral consensus, as well as within the administration, that something needs to be done on stablecoins,” the CEO of the Blockchain Association, Kristin Smith told Fortune.
Why the Blockchain Association is Pushing for Stablecoins Regulations
The need to regulate stablecoins cannot be overemphasized, according to the Blockchain Association.
This asset class, commonly comprised of tokens that are pegged to one or more underlying assets, is frequently at the center of the debate regarding crypto regulations in the US, Europe, and even Asia.
Smith strongly believes “this is something that Congress needs to legislate.” Most stablecoins are backed by the US dollar, however, gold is also a preferred asset.
Some stablecoins such as TerraUSD (UST), which crashed in May 2022 causing a bloodbath in crypto prices, are stabilized by a blockchain-based algorithm.
The collapse of UST was a wake-up call to regulators that stablecoins cannot be left to operate in the dark, considering the crucial part they play in the cryptoeconomy.
Besides their stability in the volatile crypto market, firms like Paxos and Circle believe stablecoins provide users with a secure, easy-to-use on-ramp into the digital asset ecosystem.
Currently, there are three stablecoins in the top ten largest cryptocurrencies. Tether (USDT) is the largest in the third position, boasting $72 billion in market cap.
Its daily trading volume is often unrivaled even by the most popular crypto asset, Bitcoin. The latter is currently playing catch up by a large margin at $14 billion recorded in the last 24 hours compared to $63 billion for USDT.
Circle’s USD Coin (USD) is currently the fourth-largest crypto with $43 billion in market cap, while Binance USD (BUSD) closes the top ten biggest cryptos with a market share of $8.4 billion.
Despite stablecoins being at the center of the crypto ecosystem, lawmakers are still not sure how to provide oversight.
While the Securities and Exchange Commission (SEC) can direct crypto companies to get in line with existing securities laws, stablecoins present an uncharted—and often delicate—landscape.
Stablecoins Regulations Stalemate – A Concerned Government but Only Few Steps Taken
A report released in 2021 by the President’s Working Group on Financial Markets recommended that Congress prioritize the enactment of legislation to lay the framework for the operation of stablecoins.
The same view was later reverberated in May 2022 by Janet Yellen, the Treasury Secretary.
Despite the many calls and recommendations US regulatory agencies are still openly conflicted about the classification of cryptocurrencies, stablecoins included.
Gary Gensler, the chair of the SEC (pictured), recently threatened to sue Paxos for allegedly disregarding consumer protection laws.
The SEC said in February that Binance USD (BUSD), a stablecoin issued by Paxos is an unregistered security.
This confusion appeared to have worsened on Wednesday when Rostin Behnam, the Chair of the Commodity Futures Trading Commission (CFTC), said he believed stablecoins fall under commodities and did not warrant a fresh regulatory framework.
Waters and McHenry made headlines during the previous congressional session when they almost introduced a bipartisan stablecoin bill.
Despite vivid differences between both parties, McHenry believed there was a chance to iron out these variances over state and federal regulation – he referred to the bill as an “ugly baby” at the time.
Jake Chervinsky, the Blockchain Association’s chief policy officer, in a statement directed to Fortune, said that stablecoins are one asset class most crypto companies agree needs regulatory oversight.
“This is us being proactive and coming out to say, this industry understands the importance of regulation,” Chervinsky said.
Recommendations by The Blockchain Association
In the letter to the House Financial Services Committee Chair, the Blockchain Association outlined several recommendations for legislation.
According to Fortune, Smith, and Chervinsky reckon that these recommendations would provide lawmakers with the requisite knowledge to differentiate between distinct groups of stablecoins.
One of the initiatives involves prioritizing stablecoins that are “custodial,” meaning they are created, managed, and redeemed by a company that has control over the assets that back them.
The focus will also be on ensuring that reserves consist of high-quality, liquid assets. This is particularly important as a common objection to prominent stablecoin Tether relates to doubts about the quality of its reserve assets.
The letter also touched on public disclosures, which have been issues regulators often complain about, and which company types would be allowed by law to issue and manage stablecoins.
Intriguingly, the Blockchain association recommended that insured depository and nonbank firms be included among companies that can issue this highly contested asset class.
Stablecoin issuance should not be a preserve of firms with bank charters because such a situation will likely create a “regulatory moat around legacy incumbents that don’t need any more help from the government in order to exclude innovators and competitors from the marketplace,” Chervinsky told Fortune.
Finally, the letter from the Blockchain Association calls for clarity surrounding the provident agencies picked to oversee stablecoins.
This recommendation appears to have surfaced due to significantly divergent views on stablecoins from the SEC and CFTC, particularly on the classification of stablecoins.
Chervinsky suggested that regulation of stablecoins should fall under the purview of either the Federal Reserve or the Office of the Comptroller of the Treasury, rather than the SEC or CFTC.
Federal Reserve vice chair Michael Barr, during a speech dedicated to crypto on Thursday, reiterated that stablecoins possess immense potential to scale drastically.
However, that will come with increased operation risks demanding the Fed be proactive in fostering prudential regulations and oversight.
“We must learn from the past to ensure that we do not allow for new forms of unregulated private money subject to classic forms of run risk,” Barr said.
Meanwhile, the cryptocurrency market has been on a freefall trend since February amid increasing economic uncertainty and pressure from regulatory agencies.
Bitcoin price is trading at $19,692 at the time of writing after nosediving 9% in 24 hours.
Ethereum price is also in the red, trading 9.8% down on the day at $1,384. The sell-off has seen the total market cap drop by 8.7% in 24 hours to $949 billion.
Declines could increase further in two weeks, with the Fed expected to hike interest rates by 0.5%.
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