Crypto CEOs Push Back Calls for Stablecoin Crackdown

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WASHINGTON – Federal policymakers have been making a lot of noise lately about the state of cryptocurrency regulation. On Wednesday it was the turn of the crypto industry.

CEOs of major crypto firms appeared before the House Financial Services Committee with a somewhat hybrid message: There is some need for more regulation of their industry, they said, but not to the extent that some in Washington want it.

“It’s healthy for the industry to be regulated,” said Samuel Bankman-Fried, founder and CEO of the FTX crypto exchange, one of six witnesses testifying at the hearing. “I think it’s also already regulated in a number of ways. I think there are points that need to be addressed, to monitor various aspects of the industry that are not being sufficiently monitored at the moment.

Under the Trump administration, regulators appeared willing to promote crypto innovation by allowing banks to offer crypto services and granting bank charters to companies specializing in crypto, among others.

The Biden administration sang a decidedly different tune. Acting Currency Comptroller Michael Hsu suggested questioning some of the charter approvals and other policies endorsed by his predecessor, Brian Brooks, while Securities and Exchange Commission Chairman Gary Gensler, called crypto “Wild West.”

“Crypto policy should take into account not only the new risks introduced into the system, but also the risks of the current system which are resolved through decentralization,” said Brian Brooks, former acting controller of the currency, who is now CEO of Bitfury. .

Bloomberg News

Last month, the president’s financial markets task force, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency concluded that only insured depository institutions should be able to issue stable coins. The Federal Reserve is also considering whether it should issue its own digital currency.

But the CEO of crypto firm Circle, the issuer of the USDC stablecoin, said his business model is more secure than an FDIC-insured bank.

“An FDIC insured bank is FDIC insured because the bank takes risk with deposits,” Jeremy Allaire said. In August, he announced that Circle was looking to become a national digital currency bank.

Allaire argued that the reserves behind stablecoins are not exposed to the same kinds of risks. “Well-designed stablecoins are safer than bank deposits because with bank deposits, you take a risk on the underlying bank’s loan portfolio,” he said.

Some Democratic lawmakers on the House committee have urged regulators not to wait for legislative action before taking action to better regulate the industry.

“Regulators need to listen very carefully to this hearing,” said Representative Brad Sherman, D-Calif. “Don’t shy away from saying we’re not going to do anything until we pass meaningful legislation.”

But CEOs stressed that policymakers shouldn’t adopt new policies to regulate the industry without fully understanding the benefits of the technology.

“Crypto policy should take into account not only any new risks introduced into the system, but also the risks of the current system that are resolved through decentralization,” said Brooks, who is now CEO of Bitfury after leading the OCC during Trump. administration.

However, there was some disagreement among the panelists as to whether decentralized finance would benefit from a dedicated federal regulator to oversee the digital asset sphere.

“We believe the government should regulate digital assets under a new framework” and “responsibility for this new framework should be assigned to a single federal regulator and a new registration process established for digital asset markets,” said Coinbase Inc. CEO Alesia Haas.

“Our existing regulatory system is not working effectively for the open, decentralized networks that crypto has created,” Haas said in his prepared remarks. “Financial regulation has been built around a series of financial intermediaries – transfer agents, clearing houses, and traditional brokers – who are not required to conduct crypto transactions.”

But Brooks disagreed, pointing to the already fragmented regulatory environment in the United States.

“The last thing we need to do is add another regulator to a system that already has dozens of regulators,” Brooks said. “What we need to do instead is have parity for crypto activity with traditional finance.”

“If I’m setting up a crypto lending platform, I should probably be FDIC regulated. If I am a crypto trading platform, I should probably be regulated by the [Commodity Futures Trading Commission] and SEC, ”added Brooks.

Brooks criticized regulators in the Biden administration for being too hesitant to grant banking charters to crypto firms. “Is it consistent to consider that only banks should be allowed to issue stablecoins,” said Brooks, “but then not grant a banking charter to the larger stablecoin issuers? “

While witnesses pointedly directed their responses to members of Congress, much of the comments had implications for financial regulators across the country who are currently trying to grasp the risks posed by crypto as a whole.

But several Republicans on the House committee expressed doubts that the country’s current financial regulators have the ability to control the crypto industry today without crushing innovation in the process.

“The United States has a huge opportunity with crypto, but I’m concerned this regulatory state is going after an industry that regulators really don’t understand yet,” said Rep. Ted Budd, RN.C.

Among financial regulators, the SEC has been the most aggressive in seeking to control crypto. Gensler has often said the industry needs to implement stronger investor protections, and the agency has pushed for a broad classification of many crypto assets as securities.

But CEOs testifying at the hearing objected to this view.

“Existing laws, regulations and legal precedents make it clear that blockchain tokens are not securities,” Haas said, “and we believe the law clearly shows that blockchain-based digital assets are one of two. things, either a new form of digital property or a new way of recording property.

Brooks, meanwhile, suggested that a better approach to controlling the crypto industry would be to integrate it into the regulated banking industry.

“A national policy agenda that takes crypto compliance seriously should assess whether it makes more sense to continue to keep crypto business largely outside the regulated financial system, or to bring it into the system precisely so that” they can be supervised and operated with appropriate levels of risk management, ”he said.

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