In a highly anticipated hearing on stablecoins, the House Committee on Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion engaged in a spirited debate over the appropriate level of regulation—state or federal. The hearing, which took place today, featured testimony from five experts and examined two proposed bills to regulate stablecoins.
The Republican bill, initially published in April before a previous hearing, took center stage. Still, it faced competition from a draft introduced by Ranking Member Maxine Waters, based on a bill from the previous session of Congress. The key contention between the two bills was the concept of a “race to the bottom” in state-level regulation.
The Republican bill allowed stablecoin operators to choose their registration state without involving the Federal Reserve Board, while Democrats favored preserving federal oversight with the appropriate regulator.
During the hearing, David Portilla, a partner at Davis Polk & Wardwell, advocated for a balanced approach, suggesting that federal regulation would offer uniform rules while state regulation could foster innovation. He emphasized that the question of regulation need not be a binary choice.
The experts unanimously agreed that existing regulations were ill-suited for stablecoins, requiring the development of a new regulatory framework. Portilla proposed a “floor” mechanism for federal involvement, establishing minimum standards and a “toggle” based on the size of the stablecoin issue. In contrast, the Republican bill proposed uniform regulation for all issuers, regardless of size.
National interest emerged as a recurring theme during the hearing, with Rep. Brad Sherman expressing concerns that a dollar-backed stablecoin could compete with and weaken the fiat dollar, potentially undermining the effectiveness of U.S. sanctions. Matt Homer, representing venture capital firm The Department of XYZ, argued that stablecoins would emerge regardless of regulatory efforts, emphasizing the need for domestic regulation to maintain control.
Pro-crypto legislator Warren Davidson echoed these sentiments, highlighting that stablecoin developers often sought regulatory certainty abroad. He stressed the importance of providing an enabling regulatory environment domestically to attract stablecoin projects.
Robert Morgan, CEO of the USDF Consortium, voiced his support for the current regulatory structure and emphasized the benefits of tokenization for traditional banks. Morgan described tokenization as a “third way,” suggesting that it could bridge the existing financial system and the emerging digital economy.
The hearing showcased the ongoing debate over stablecoin regulation, with stakeholders expressing diverse perspectives on the role of state versus federal oversight. As stablecoins continue to gain prominence in the financial landscape, lawmakers face the challenge of striking the right balance between innovation, consumer protection, and national interests. The outcome of this debate will shape the future regulatory landscape for stablecoins in the United States.
