Regulation is needed immediately for the $180 billion stablecoin market or “bad things will happen” to people’s investments, Senator Pat Toomey (R-Pennsylvania) said in an interview with Financial Times (FT) on Friday (May 6).
Toomey, the ranking member of the Senate Banking Committee, introduced a bill last month for a new regulatory framework for stablecoins. The Stablecoin TRUST Act defines a payment stablecoin as a convertible virtual currency designed to maintain a stable value similar to a fiat currency. The proposed legislation also establishes a new federal license for issuers and associated regulations.
“Could a lot of individual consumers get badly burnt? Absolutely. Would that be a bad thing? Yes, it would be bad for those consumers. It would also probably be a big setback for the industry,” Toomey told FT.
“For both of those reasons, I would like to get a sensible framework in place before some bad thing happens. And let’s face it, eventually, some bad things will happen — after all, this is still a relatively new technology.”
The Biden administration is in favor of allowing only nationally regulated financial institutions to issue stablecoins, which would pull tether and USD Coin, the two biggest issuers, out of the picture.
Toomey’s draft legislation, however, takes a looser approach and would also allow other organizations to issue stablecoins, with certain caveats, like revealing monthly cash reserves.
Toomey told FT restricting permissible issuers to insured banking institutions is “way too constraining” and he doesn’t see the logic in it.
The most popular coin is Tether, which has a market capitalization of an estimated $83 billion, compared to roughly $4 billion at the start of 2020, according to CoinMarketCap. While it’s been fined in the past by regulators for lack of reserves, Tether now indicates it has enough reserves to match 100% of the coins it has issued.