The United States House of Representatives’ hearing on stablecoins focused on the debate between state and federal regulation, as lawmakers considered two proposed bills. The hearing, conducted by the House Committee on Financial Services’ Subcommittee on Digital Assets, Financial Technology, and Inclusion, featured testimony from five experts who shared their views on regulating stablecoins.
The subcommittee examined two draft bills: one introduced by Republicans in April and another introduced by Ranking Member Maxine Waters, based on a bill from the previous session of Congress that was not passed.
A major point of contention in the discussion was the “race to the bottom” concerning state-level regulation of stablecoins. The Republican bill proposed allowing stablecoin operators to choose the state where they register without the involvement of the Federal Reserve Board. Supporters argued that this approach would prevent a race to the bottom and align with the two-tiered federal/state banking regulatory system. However, Democrats expressed skepticism and favored preserving federal regulation under the appropriate regulatory authority.
David Portilla, partner at Davis Polk & Wardwell, suggested a middle ground, emphasizing that the question of regulation need not have a binary answer. He argued that federal regulation would provide uniformity and consistency, while state regulation could foster diversity and innovation. Portilla also noted that current regulations were not adequately tailored to address the unique characteristics of stablecoins. He proposed the concept of a “floor” mechanism for federal involvement in setting minimum standards, along with a “toggle” approach based on the size of the stablecoin issuer. In contrast, the Republican bill aimed to regulate all issuers equally, regardless of their size.
The hearing also touched on national interest, with Rep. Brad Sherman expressing concerns about stablecoins backed by the US dollar competing with and potentially undermining fiat currency, thereby diminishing the effectiveness of US sanctions. Matt Homer of venture capital firm The Department of XYZ highlighted the inevitability of stablecoins and emphasized the importance of regulating them domestically to maintain control. Pro-crypto legislator Warren Davidson echoed this sentiment, emphasizing the need to provide certainty for stablecoin developers and encourage them to stay within the US regulatory framework.
Robert Morgan, CEO of the USDF Consortium, voiced support for the current regulatory structure and highlighted the benefits of tokenization for traditional banks. He described tokenization as a “third way” that could offer advantages in the financial industry.