The response to the query of what level stablecoin issuers are controlled on “need not be binary,” according to one witness.
The debate over state versus federal regulation became a major topic of discussion during the US House of Representatives hearing on stablecoins. Five experts spoke before the House Committee on Financial Services’ Subcommittee on Digital Assets, Financial Technology, and Inclusion as they discussed two measures that would regulate stablecoins.
Two draft legislation were examined by the subcommittee, one by Ranking Member Maxine Waters and the other by Republicans in April. The competing drafts demonstrated several approaches to stablecoin regulation and emphasized the continued disagreement between state and federal authorities over the most suitable regulatory framework for these digital assets.
On state-level stablecoin regulation, the “race to the bottom” was the main source of contention. The Republican proposal would let stablecoin operators select the state in which they register directly, bypassing the Federal Reserve Board.
The question of whether to create a federal floor or maintain federal regulatory authority is at the center of the stablecoin regulation issue in the United States. While Democrats want federal oversight, proponents of a floor believe that it is necessary to prevent a race to the bottom. There’s a search for a medium ground.
David Portilla, partner at Davis Polk & Wardwell, favored a middle road. He said:
“Federal regulation of stablecoin issuers would offer more uniform, consistent rules, whereas state regulation could promote more diversity and innovation in regulation and supervision. The answer to this question need not be binary.”
In any event, he claimed that stablecoins were not suitable for present regulations. There may be a “toggle” based on the size of the issue in addition to a “floor” mechanism for federal engagement in stablecoin regulation to set minimum criteria, he said. Regardless of issuer size, all would be subject to the same regulation under the Republican bill.
Rep. Brad Sherman, an outspoken opponent of cryptocurrencies, frequently brought up national interest, arguing that a stablecoin backed by dollars would undermine the fiat dollar by competing with it and lessen the impact of U.S. sanctions.