Casey Wagner

<div id="highlights-block_624dece6ffa04" class="highlights">
 <ul>
 <li>Sen. Toomey’s new stablecoin bill seeks to clarify that payment stablecoins are not securities and are not under SEC jurisdiction</li>
 <li>The existing regulatory framework for banks cannot be applied to crypto, Toomey said</li>
 </ul>
 
</div>



Sen. Pat Toomey, R-Pa., revealed a new draft of stablecoin legislation that would allow more flexibility around which groups are authorized to issue stablecoins.&nbsp;



The <a href="https://www.banking.senate.gov/imo/media/doc/the_stablecoin_trust_act.pdf" target="_blank" rel="noreferrer noopener">proposal</a>, released Wednesday, establishes a new federal license designed specifically for stablecoin issuers while preserving the state-registered money transmitter status for most existing stablecoin issuers. Additionally, the draft bill clarifies that insured depository institutions are permitted to issue stablecoins.



The legislative proposal comes as lawmakers continue to debate requirements for which institutions can issue stablecoins.



Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury, appeared before Congress <a href="https://cms.blockworks.co/congressional-action-on-stablecoins-could-come-as-soon-as-this-month-source-says/" target="_blank" rel="noreferrer noopener">in February</a> to defend stablecoin recommendations from the President’s Working Group on Financial Markets (PWG). The report proposed that only federally insured depository institutions should be permitted to issue the tokens.&nbsp;



“[That proposal] immediately struck me as very, very narrowing,” Toomey said. “I was worried that this could import this whole massive regulatory morass that banks are subjected to, and you&#8217;re gonna impose that on someone because they want to issue a stablecoin? That didn&#8217;t make sense to me.”&nbsp;



Toomey’s proposal also establishes universal guidelines for payment stablecoin issuers, regardless of whether they are a state money transmitter or receiving a new federal license. These include mandatory disclosures regarding the reserve assets backing the stablecoin and subjecting them to routine audits by registered public accounting firms.



“I don&#8217;t think it&#8217;s a good idea to apply the existing antiquated transaction reporting regime that exists in the payment system today to new technologies like stablecoins,” Toomey said during a webcast to the media Wednesday. “Frankly, we ought to be updating that regime, not incorporating it on a new technology.”&nbsp;



The draft bill clarifies that payment stablecoins should not be classified as securities, a distinction that will help encourage innovation in the space, Toomey said.&nbsp;



“I think it is extremely important to provide clarity over the definition of what in the digital asset [space] constitutes security and what doesn&#8217;t,” Toomey said. “I think that&#8217;s already having a chilling effect on the development of new protocols and innovation…we have the SEC claiming that basically every digital asset is a security, I think that&#8217;s untenable.”



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US Senator Proposes Looser Stablecoin Regulation

<div id="highlights-block_6227b12f93309" class="highlights">
 <ul>
 <li>Efforts are underway in the House and the Senate to regulate stablecoin issuers and oversee reserves</li>
 <li>The escalating conflict in Ukraine has led lawmakers to question how a CBDC might work in the US</li>
 </ul>
 
</div>



As stablecoins and their reserves have been increasingly scrutinized, bills designed to regulate the digital assets will likely be introduced by US lawmakers this month, according to a source familiar with the matter.



Different versions of the bill are expected to be rolled out in the House and Senate this month, the person said. The source was granted anonymity to discuss private information.



Both the House and Senate heard from Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury, in February to discuss a recent report on stablecoins from the President’s Working Group on Financial Markets (PWG).



The PWG and Liang recommended that stablecoin issuers must be federally insured depository institutions — more commonly known as banks. More Democrats are starting to disagree with the guidance, the person said, but the upcoming bills, some of which will be bipartisan efforts, will center around creating rules for stablecoin reserves.



&#8220;There seems to be a bipartisan consensus that Congressmen want to prevent another situation like Tether, the stablecoin known as USDT that has been subject to enforcement actions and scrutiny from regulators for holding only a small portion of its reserves in US dollars,” said Ron Hammond, director of government affairs for the Blockchain Association. “The bills may include measures requiring stablecoin issuer audits and clearer guidelines about what assets can make up reserves and whether banks or nonbanks can issue stablecoins.&#8221;



The move comes after <a href="https://cms.blockworks.co/democratic-rep-stablecoin-issuers-dont-have-to-be-banks-with-100-reserves/" target="_blank" rel="noreferrer noopener">Rep. Josh Gottheimer</a>, D-N.J.,revealed in February an <a href="https://gottheimer.house.gov/uploadedfiles/dd._stablecoin_innovation_and_protection_act_of_2022.pdf" target="_blank" rel="noreferrer noopener">early draft</a> of legislation aiming to classify certain stablecoins as “qualified” if consumers can redeem the digital currency on a one-for-one basis with US dollars.



Recent concerns over Russia’s <a href="https://cms.blockworks.co/russia-accelerating-cbdc-efforts-as-us-eu-ponder-swift-ban-of-russian-banks/" target="_blank" rel="noreferrer noopener">central bank digital currency</a> (CBDC), which is currently in pilot, and Canada&#8217;s freezing of crypto addresses have lawmakers rethinking the risks associated with a US CBDC, the person added. It’s not the first time lawmakers have questioned the role a CBDC might play in the current financial landscape.



In January, during Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee, Sen. Pat Toomey, R-Pa., questioned whether a Fed digital dollar would be able to exist alongside a “well-regulated, privately issued stablecoin.” Powell, who <a href="https://cms.blockworks.co/powell-a-cbdc-would-make-cryptocurrencies-obsolete/" target="_blank" rel="noreferrer noopener">previously argued</a> that a CBDC would render private stablecoins obsolete, assured Toomey the two are not mutually exclusive.



While efforts to draft bills related to stablecoins have been in the works for some time, the escalating situation in Ukraine may delay future progress. One lawmaker’s office has already put their stablecoin work on hold, the person said.



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Congressional Action on Stablecoins Could Come as Soon as This Month, Source Says

<div id="highlights-block_620c065bb14e3" class="highlights">
 <ul>
 <li>US Senators met Tuesday to discuss stablecoin regulation</li>
 <li>Stablecoin issuers shouldn’t have to be banks as long as their reserves are secure, one representative argues</li>
 </ul>
 
</div>



As US lawmakers discussed stablecoin regulation Tuesday, one New Jersey legislator called for greater transparency around the reserves that back stablecoins.



Josh Gottheimer, D-N.J., wants to see certain stablecoins classified as “qualified” if consumers can redeem the digital currency on a one-for-one basis with US dollars, according to a <a href="https://gottheimer.house.gov/uploadedfiles/dd._stablecoin_innovation_and_protection_act_of_2022.pdf" target="_blank" rel="noreferrer noopener">draft of a bill</a> released Tuesday.



The proposal, dubbed the Stablecoin Innovation and Protection Act, comes as members of the Senate Committee on Banking, Housing and Urban Affairs <a href="https://www.banking.senate.gov/hearings/examining-the-presidents-working-group-on-financial-markets-report-on-stablecoins" target="_blank" rel="noreferrer noopener">gathered Tuesday</a> to hear from a Treasury official on the matter.



The appearance of Jean Nellie Liang, the under secretary for domestic finance at the Department of the Treasury, comes one week after she <a href="https://cms.blockworks.co/treasury-official-says-stablecoin-issuers-must-be-banks-to-ensure-security/" target="_blank" rel="noreferrer noopener">discussed</a> the same topic with House lawmakers: the recent report on stablecoins from the President’s Working Group on Financial Markets (PWG).



Senators were interested in hearing more about stablecoin reserve requirements, which is what Gottheimer’s proposal explores.



“Currently, if the issuer were to go belly up, in other words, if they were to go out of business, and they didn&#8217;t have reserves to cover the deposits…the holders of stablecoin would just be out of luck, right?” Sen. Chris Van Holland, D-Md., asked Liang.



“That is correct,” Liang said. There are currently no requirements for assets backing stablecoins such as USDC or Tether, she added.



To head off such risks, the federal report posits that stablecoin issuers must be federally insured depository institutions — more commonly known as banks.



Stablecoins issuers should be able to be banks or non-banks as long as their reserves are at least 100% in US dollars, Gottheimer’s office said Tuesday.



“For cryptocurrency to thrive here in the US, instead of overseas, we must provide more certainty to help boost innovation and protect consumers,” Gottheimer said in a <a href="https://twitter.com/RepJoshG/status/1493613810292248591?s=20&amp;t=0Yzr6Ju85VLj_KHtrPa1zA" target="_blank" rel="noreferrer noopener">tweet</a>. 



Industry participants have gotten behind Gottheimer’s proposal, including Sam Bankman-Fried, the CEO of crypto exchange FTX, who said it’s “exciting” to see interest from lawmakers in stablecoin regulation.



“Stablecoins hold huge promise for payments and finance, and regulatory oversight and clarity can give them the trust and safety they need,” he added in a <a href="https://twitter.com/SBF_FTX/status/1493575046845145091?s=20&amp;t=0Yzr6Ju85VLj_KHtrPa1zA" target="_blank" rel="noreferrer noopener">tweet</a>. 



Gottheimer is now looking for input from lawmakers and crypto experts. Politicians have <a href="https://cms.blockworks.co/biden-admin-readying-crypto-exec-order/" target="_blank" rel="noreferrer noopener">made it clear</a> that further regulatory actions around cryptocurrencies should be expected in the coming months.



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