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Representative Stephen Lynch said he worries that without proper crypto regulation, lawmakers are “[inviting] the next financial disaster.”
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Crypto industry advocates are optimistic about improved regulatory clarity under the Trump administration, but want policymakers to act with a sense of urgency to claw back the regulation-by-enforcement tactics of the previous regime.
Their calls came during a Feb. 11 hearing by the US House Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence. The subcommittee heard from five witnesses on the future of digital assets regulation.
From left to right, Kraken’s Jonathan Jachym, Crypto Council for Innovation’s Ji Hun Kim, Steptoe LLP partner Coy Garrison, PayPal crypto executive Jose Fernandez da Ponte and former CFTC Chairman Timothy Massad. Source: GOP Financial Services
Jonathan Jachym, deputy general counsel at Kraken, was the first to speak, focusing specifically on the need to pass “fundamental rules for centralized intermediaries.”
Jachym said effective market structure policy should begin with Congress granting spot market authority to the Commodity Futures Trading Commission (CFTC), which would then “regulate centralized and intermediaries and secondary market transactions in digital commodities.”
“We must avoid blunt application of centralized rulebooks to decentralized protocols that do not have centralized governance systems, infrastructure or management,” he said.
Jonathan Jachym, deputy general counsel and global head of policy at Kraken, speaks on Feb. 11. Source: GOP Financial Services
Ji Hun Kim, president and acting CEO of the Crypto Council for Innovation, echoed similar sentiments as Jachym.
Despite recent progress under President Donald Trump, “more still needs to be done […] to unwind the significant damage and uncertainty caused by the regulation-by-enforcement approach by the prior administration,” he said while criticizing former Securities and Exchange Commission Chair Gary Gensler.
“Unfortunately, during Chairman Gensler’s tenure, the SEC brought over 125 enforcement actions related to digital assets but issued no clear guidance or rulemakings to identify when an asset is, in fact, a security,” said Kim.
Related: Trump’s executive order a ’game-changer’ for institutional crypto adoption
STABLE Act misses the mark
On Feb. 5, House Financial Services Committee Chair French Hill and Digital Assets, Financial Technology, and Artificial Intelligence Subcommittee Chair Bryan Steil released a draft version of the STABLE Act. Building on the efforts of former Committee Chair Patrick McHenry, the draft bill intends to provide clearer regulatory guidance for stablecoin issuers.
“It was in 2014 under my leadership that the CFTC declared Bitcoin a commodity, and since that time, for over 10 years, I’ve been calling for strengthening regulation,” Massad said on Feb. 11. Source: GOP Financial Services
Former CFTC Chair Timothy Massad, who currently represents Harvard University’s Kennedy School of Government as a director of the Digital Assets Policy Project, called stablecoins “the most useful application of [blockchain] technology to date.” However, he said that the STABLE Act misses the mark in several areas:
“The STABLE Act has many features I support, such as full reserves for tokens, limitations on the activities of an issuer, but there are many areas where it is deficient. And it is substantially weaker than what was negotiated between the former committee chair and the ranking member last fall, which the ranking member introduced yesterday.”
Specifically, Massad raised five issues with the proposed legislation. Firstly, it creates “far too much risk of weak state standards and [has] an inadequate review process” because “there is no ongoing federal supervision of state issuers.”
Timothy Massad and Cointelegraph’s Sam Bourgi on a DeFi panel at the 2023 Collision conference. Source: Cointelegraph
Secondly, the legislation does not address what happens if a stablecoin issuer goes bankrupt, and thirdly, it does not do enough to “address the risks of financial crime and the evasion of sanctions,” he said.
The fourth issue is that the STABLE Act might not have “much impact on Tether,” the company behind the $140 billion USDt (USDT) stablecoin.
“The legislation says it’s unlawful to issue a stablecoin that isn’t chartered, but there’s no enforcement mechanism for that and no penalties. It needs to have those and an explicit territoriality provision,” said Massad.
The fifth problem is that the act “doesn’t give regulators enough authority and discretion, given that [stablecoins] could become a very significant market and will evolve in ways we can’t predict.”
Stablecoins — including USDt, Circle’s USD Coin (USDC), PayPal USD (PYUSD) and other competitors — are collectively valued at $230 billion, according to CoinMarketCap.
Related: Trump’s crypto ventures raise conflict of interest, insider trading questions
This article first appeared at Cointelegraph.com News
