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Top Republican Revives Call for 2022 Stablecoin Regulation

By  |  September 19, 2022

One of the Senate’s top Republicans believes that stablecoin regulation can still happen this year. Pennsylvania’s Pat Toomey, the top Republican on the Senate Banking Committee, said that he believes Congress can get together on a bill that would at least prevent a repeat of the $48 billion collapse of the Terra/LUNA algorithmic stablecoin in May, which suffered a bank-run style collapse in just a week. Efforts to pass similar legislation in the House have faced repeated setbacks.

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    Speaking on the eve of Thursday’s (Sept. 15) Security and Exchange Commission (SEC) oversight hearing before that committee, Toomey told Bloomberg’s “Odd Lots” podcast that “the fact that there was a sort of sensational bad event did move this up the list of priorities — put it on people’s radar, who didn’t have it on their radar.

    “I still think there’s a chance to get stablecoin legislation done this year. I think the administration would like to get something done.”

    The core goal of such legislation would be to effectively ban algorithmic stablecoins, which maintain their dollar peg via a variety of arbitrage mechanisms while backing reserves of cryptocurrency in favor of those like the Circle-issued No. 2 stablecoin USDC, which relies on reserves of dollars and highly liquid investments like short-term U.S. Treasuries.

    The No. 1 stablecoin, Tether’s USDT, is eliminating some of its less liquid investments in favor of T-bills. The Terra/LUNA collapse and subsequent wave of bankruptcies by crypto lenders like Celsius and Voyager Digital, which has left hundreds of thousands of investors in limbo and likely to lose at least some of their funds, had boosted hope among Senate Banking Committee and House Financial Services Committee leadership that stablecoin legislation could be pulled out.

    Toomey, who broadly supports a light-handed approach to crypto regulation, has said that such legislation should “require that you’d have to be licensed to issue it, and … how you could go about obtaining such a license.” It should require issuers to back their holdings with cash or cash-equivalent assets that are subject to regular auditing and reporting.

    A pair of stripped-down bills before the House and the Senate would simply cover that. However, the chair of the House Financial Services Committee, Rep. Maxine Waters (D-Calif.), and Rep. Patrick McHenry (R-N.C.) have tabled more complex legislative goals repeatedly — most recently on Sept. 4 — after failing to overcome partisan differences.