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The evolution of the U.S. stablecoin Bill – no longer just U.S. dollars

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Today there will be another Congressional hearing on digital assets, with two pieces of draft legislation, one relating to digital assets and the other the latest iteration of the Republican stablecoin Bill. After starting off as bipartisan, the stablecoin bill split into Republican and Democrat versions. There is a small amount of movement on the most contentious topic of state regulation.

A notable change is the definition of a payment stablecoin. A sub clause stating that it is ‘denominated in United States dollars’ has been dropped. In several other jurisdictions, stablecoin legislation supports multiple currencies.

The Democrat bill included a requirement to explore central bank digital currency (CBDC) and had diversity clauses. The Republicans have not reinstated those. 

The Democrats also retained a role for the Securities and Exchange Commission (SEC). The Republicans have not relented on this, apart from allowing the SEC to participate in a review of non-fiat backed stablecoins. Their version retained clauses explicitly stating that stablecoins are not securities and that assets held in custody for clients should not be required to appear on balance sheets, in opposition to a rule the SEC introduced last year.

Movement on State regulation of stablecoins

During the previous hearing, the Democrats expressed concerns that state regulation could result in a race to the bottom, with states competing to attract stablecoin issuers. Republicans insisted that enabling State regulators to supervise stablecoins was essential and asked why there could be State chartered banks but not stablecoins. The previous Republican draft already included a role for Federal regulators for rulemaking and to step in on enforcement under certain circumstances. That clause is unchanged. 

The latest iteration defines some minimum requirements for State supervised stablecoin issuers which may or may not address some of the Democrat concerns. This clause is part of a section on consumer protection that the Republicans previously dropped. It’s now mostly restored.

The current Republican draft also restored sections on stablecoin interoperability, a moratorium on endogenous stablecoins such as algorithmic or crypto-backed coins, and a prohibition on lending out reserves (hypothecation).

The hearing takes place today at 2pm Eastern time.

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