Witnesses before the House Subcommittee on Digital Assets Weigh In on Stablecoin Legislation

The House Financial Services Committee, Subcommittee on Digital Assets, Financial Technology, and Inclusion, considered recommendations from a variety of market participants on stablecoin legislation.

The witnesses included:

• Fennie Wang, Founder and CEO, Humanity Cash, a non-profit that "helps communities design their own community currency, which are local payment networks that encourage recirculation of funds within a community": Ms. Wang called for risk-appropriate regulations of stablecoins that are not cost prohibitive and that provide protections against bad actors for "grassroots entrepreneurs and community innovators." She said that local innovation should be governed by state regulators since they are "closer to the ground."
• Matthew Homer, Managing Member, The Department of XYZ, a venture capital firm: Mr. Homer recommended that Congress: (i) recognize the dual banking system of state and federal regulation as an "inherent feature" of the U.S. economy that benefits both consumers and markets, (ii) aim to facilitate further competition in U.S. markets and financial systems and (iii) keep current with new developments in order to effectively regulate digital assets.
• David Portilla, Partner, Davis Polk & Wardwell LLP: Mr. Portilla asserted that the current legal framework does not effectively regulate payment stablecoins. He said that stablecoins pose risks that Congress must "proactively mitigate" through "fit-for-purpose" regulations that allow stablecoin technology to continue to develop.
• Robert Morgan, CEO, USDF Consortium, an association of FDIC-insured financial institutions: Mr. Morgan argued that legislators should treat blockchains separate from cryptocurrencies when examining potential new rulemakings. He explained that even though blockchain technology is a "flexible infrastructure" that works to support multiple applications, it is often grouped with assets, such as cryptocurrencies. He warned that a "one-size-fits-all" approach to regulating blockchains that also seeks to mitigate risks in other crypto asset types, could limit the usage of blockchain technology in other industries.
• Delicia Reynolds Hand, Director, Financial Fairness, Consumer Reports: Ms. Hand urged Congress to resume bipartisan efforts to establish "robust and comprehensive oversight" of stablecoins in order to provide adequate protections to consumers. She advocated for legislative proposals to allow the Federal Reserve Board to reject stablecoin state licenses and state regulators that impose risk management requirements. Ms. Hand called on Congress give the SEC more explicit direction on when and how it can regulate stablecoins.

The Subcommittee is currently considering two legislative proposals:

• H.R. ____, To provide for the regulation of payment stablecoins, and for other purposes
• H.R. ____, To provide requirements for payment stablecoin issuers, research on a digital dollar, and for other purposes

Subcommittee Chair, Congressman French Hill (R-AR) said both legislative proposals include (i) "strict" requirements for reserves and capital and (ii) disclosure and attestation requirements.