US Senate Holds Hearings on Stablecoins

Stablecoins are intended to address the volatility of cryptocurrencies, but they are not decentralised, and the activities of their issuers are not transparent, said Sherrod Brown, chair of the U.S. Senate Banking Committee.

During the hearings on the topic “Stablecoins: how they work, how they are used and what their risks are,” the senator acknowledged that Americans are seeking an alternative to the traditional banking system. In his view, crypto has not provided one and will not be able to.

“Instead, we have witnessed wild financial speculation,” Brown added.

Most cryptocurrencies are unsuitable for payments due to volatility and high transaction fees, the politician noted. Stablecoins are meant to solve this problem, but they are neither decentralised nor transparent, he noted.

Brown argues that these assets create a link between the real economy and what he called a “fantasy economy.”

“Stablecoins like nothing else enable people to risk real money on a volatile crypto market,” he said.

“Stablecoins pose a risk to investors of losing money in another bubble and should be tightly regulated,” the senator argues.

“History tells us we should be very concerned when investments become so detached from reality,” Brown said, recalling the crashes of 1929 and 2008.

Senator Pat Toomey offered a somewhat different view. He noted that stablecoins are an important innovation capable of speeding up and cheapening payments, bringing other benefits to business, and helping develop the digital economy.

Toomey criticized proposal from the President’s Working Group on Financial Markets to treat stablecoin issuers as banks.

In his view, a stringent regulatory approach could “stifle financial innovation,” much of which occurs outside the banking sector.

Earlier, Sherrod Brown appealed to some stablecoin issuers with a request to clearly outline the processes of issuing and redeeming coins, and to provide details of agreements with trading platforms that interact with them. At the hearings, he noted that the responses he received were not satisfactory.