The US House Committee on Financial Services is set to hold a hearing on April 19 to discuss the role of stablecoins as a means of payment and whether the ecosystem needs supporting legislation. The announcement was made in a memorandum issued by the committee titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation.” The hearing will include information collected by various federal government agencies over the last year.
The upcoming committee hearing will focus on various stablecoins and their use in the payments landscape. Moreover, the committee will explore the need for stablecoin legislation depending on their underlying collateral structures. Participants testifying at the hearing include Circle’s chief strategy officer and head of global policy, Dante Disparte.
Recently, Circle’s in-house stablecoin offering, USD Coin (USDC), made headlines when it depegged from the US dollar after it revealed it had $3.3 billion of funds stuck at the collapsed Silicon Valley Bank (SVB). However, following a bailout of SVB depositors by the US government, USDC repegged its value to the US dollar.
During this timeline, hackers managed to gain access to Disparte’s Twitter account and started promoting fake loyalty rewards to long-time users of USDC. The incident highlights the need to improve security measures in the cryptocurrency industry.
Just days before the upcoming hearing, a draft bill providing a framework for stablecoins in the United States was published in the House of Representatives document repository. Speaking about the draft bill, Circle’s CEO Jeremy Allaire said, “There is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed, and operated.“ As Cointelegraph reported, the draft further allows the US government to establish standards for interoperability between stablecoins.
The committee hearing comes as stablecoins have been gaining traction as a viable means of payment in the cryptocurrency industry. Stablecoins are digital tokens backed by fiat currency or other assets, and their value is pegged to that of the asset they are backed by. They were designed to address the issue of volatility, which is a characteristic of most cryptocurrencies. The popularity of stablecoins has grown in recent years due to the advantages they offer, such as fast transaction times, ease of use, and low transaction fees.
However, there have been concerns about the stability of stablecoins, especially in times of market turmoil. One of the major issues is the lack of transparency regarding the backing assets. Therefore, there have been calls for regulatory oversight to ensure that stablecoins are backed by sufficient reserves to preserve their value.
In the wake of the Tether controversy, where the largest stablecoin issuer was accused of not having sufficient reserves to back up its tokens, the need for stringent regulatory oversight has become evident. The draft bill published before the committee hearing is a step towards achieving this goal.
Furthermore, the flaws in the cryptocurrency market have come to light, highlighting the need for cybersecurity measures to be enhanced to safeguard the industry. The recent incident where hackers gained access to Dante Disparte’s Twitter account reinforces the fact that security measures must be improved.
As the cryptocurrency market continues to evolve, there is growing interest in stablecoins as a viable alternative to traditional payment methods. However, regulators must keep pace with the industry’s progress and establish robust guidelines to minimize the risks associated with stablecoins. The upcoming committee hearing will be an important step towards achieving this goal. By discussing the role of stablecoins and exploring the need for legislation, the hearing will contribute to the development of a stable regulatory framework that promotes the growth and maturity of the cryptocurrency industry.
