WASHINGTON, D.C. – U.S. Representative Ritchie Torres (NY-15), as a member of the House Financial Services Committee, today participated in a hearing of the Subcommittee on Digital Assets, Financial Technology and Inclusion entitled “Putting the ‘Stable’ in Stablecoins’: How Legislation Will Help Stablecoins Achieve Their Promise”.
Stablecoins are a subset of cryptocurrencies that stablecoin issuers assert are pegged to a stable reserve asset such as the U.S. dollar. They’re primarily used in the U.S. to buy or sell other cryptocurrencies, or to lend or use as collateral to borrow other cryptocurrencies or fiat currency. Today, there are more than 200 different types of stablecoins, collectively worth more than $130 billion, and each state has a different regulatory framework for stablecoins. At the same time, stablecoins and activities involving stablecoins may fall under the jurisdiction of several federal regulators. The purpose of the hearing was to assist in the process of developing a federal framework for regulating stablecoins in a way that protects consumers without encroaching on the regulatory authority of individuals states. Additional relevant background can be found here.
Testimony was provided by five witnesses: Delicia Reynolds Hand, Director, Financial Fairness, Consumer Reporters; Fennie Wang, Founder and CEO, Humanity Cash; Matt Homer, Managing Member, the Department of XYZ and former Executive Deputy Superintendent of Research and Innovation, New York Department of Financial Services (NYDFS); David Portilla, Partner, Davis, Polk & Wardell, LLP; and Robert Morgan, CEO, USDF Consortium.
VIDEO of Rep. Torres’s five minutes of questioning can be found here.
VIDEO of the full hearing can be found here.
A RUSH TRANSCRIPT of Rep. Torres’s remarks and questioning is below, as delivered:
REP. TORRES: Thank you, Mr. Chair. There has been a suggestion that state regulators cannot be trusted to regulate state and licensed stablecoins without parental supervision – the Federal Reserve. If state regulators can be trusted to regulate state-chartered banks, then why can they not be trusted to have analogous authority with respect to stable coins? Regulating fractionally reserved banks that take on credit risk strikes me as far more complicated than regulating a fully reserved stable coin that takes on no credit risk at all. So, Mr. Homer, can you explain to me why there should be a strong state option for fractional reserve banking, but no strong state option for stablecoin issuance? Imagine you’re ChatGPT. I’m a five-year-old. Please explain the logic that underlies that criticism.
MR. MATT HOMER, Managing Member, the Department of XYZ and former Executive Deputy Superintendent of Research and Innovation, New York Department of Financial Services (NYDFS): It’s really hard to make a rational argument for that. As you point, out fully reserved stablecoins and other forms of non-bank companies don’t hold the same type of risk as fractional companies and states like New York have really been the primary chartering entities or regulators for non-bank companies in the history of the United States.
REP. TORRES: So, it certainly should it be possible to set a federal floor that prevents regulatory arbitrage, that prevents a race to the bottom without subordinating state regulators like DFS to the Federal Reserve?
MR. HOMER: Absolutely.
REP. TORRES: And let’s be crystal clear. State regulators like DFS have been more effective at crypto regulation than the federal government. The SVB collapse happened under the watch of the Federal Reserve. The FTX Ponzi scheme happened under the watch of the federal government. Federal regulators like the SEC spent more time targeting Kim Kardashian than Sam Bankman-Fried. And so, the evidence is crystal clear that we’ve been poorly served by the SEC’s regulatory ambulance chasing. As far as the lessons learned from FTX, those lessons should inform the development of a federal framework for regulating stablecoins. A lesson learned – stablecoin should be fully reserved, and those reserves should consist of 100% cash or cash equivalents. Raise your hand if you agree, I imagine all of you agree. Lesson learned –stablecoin reserves should be verified not only by self at a station but also by a third party audit. Please raise your hand if you agree. Customers should have the right to immediately redeem a stablecoin on a one-to-one basis. Please raise your hand if you agree. And stable coin issuers should be prohibited from lending leveraging or commingling customer funds. Please raise your hand if you agree. A federally licensed stablecoin issuer should have a single federal regulator. Too many cooks in the kitchen creates regulatory confusion and duplication. If a stablecoin is a currency regulated by the Federal Reserve, or trust regulated by the OCC, it should not simultaneously be a security regulated by the SEC. Do you agree with that, Mr. Holman?
MR. HOMER: I do.
REP. TORRES: There’s a common misconception that crypto threatens the status of the dollar as the world’s reserve currency. But the experience of stablecoins have shown the exact opposite. The fact that both stablecoins are pegged to the dollar reinforces rather than challenges the reserve status of the U.S. dollar. Mr. Homer, you actually referenced competition when it comes to. My understanding is that in the realm of financial technology, China has largely been out competing the United States, the only FinTech battleground, on which the United States has been out competing China has been the domain of digital currency – stablecoins. Dollar stablecoins have been far more successful than China’s failed attempt at a CBDC. Is that a fair assessment?
MR. HOMER: It is a fair assessment and that’s because that’s it’s because that’s what people throughout the world want. People want U.S. dollar denominated stablecoins.
REP. TORRES: And a common refrain heard from critics of crypto and Congress is that crypto has no use case. It seems to me blockchain enables real time transactions, stablecoin tokenizes the dollar and the ability of a tokenized dollar to move at the speed of the blockchain creates a better, cheaper, and faster payment system, which would include the potential for better, cheaper, and faster remittances for the lowest income Americans. Is that a fair assessment?
MR. HOMER: A very fair assessment and we’re already seeing that happen.
REP. TORRES: And would anyone else want to comment on the use cases up stablecoins? The enthusiasm is overwhelming. The eight seconds you have. Okay, other than that I can yield back.