Draft bill suggests separating legislation on payment stablecoins and digital asset markets

Republican lawmakers with the United States House Financial Services Committee have released a draft of a bill focused on payment stablecoins rather than overseeing other aspects of digital asset markets.

A senior Republican committee staffer involved in drafting the legislation told reporters on April 24 that they had narrowed the scope of a stablecoin bill proposed in September 2022 in response to feedback from lawmakers. The bill, aimed at providing “for the regulation of payment stablecoins,” would be separate from legislation focused on custodial service providers, algorithmic stablecoins, and a study on central bank digital currencies.

Under the current draft of the bill, the Federal Reserve would largely be in charge of non-bank stablecoin issuers. The issuers would also have to meet certain federal criteria to also qualify as a payment stablecoin issuer even under a state charter. In addition, the wording of the draft bill no longer included a two-year ban on algorithmic stablecoins first proposed in September 2022 in the wake of the depegging of TerraUSD Classic (USTC).

“Permitted payment stablecoin issuers shall maintain reserves backing the issuer’s payment stablecoins outstanding on an at least one to one basis,” said the draft bill. “In any insolvency proceeding […] claims from persons holding payment stablecoins issued by the permitted payment stablecoin issuer shall have priority over all other claims against the payment issuer.”

The bill represented a significant change from a draft released prior to an April 19 committee hearing on stablecoins. For that bill, Financial Services Committee ranking member Maxine Waters said the draft was not representative of a compromise between Democratic and Republican party members. The staffer said they had shared the latest draft with Democratic staff members and were awaiting feedback.

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The draft bill came as stablecoins continue to be the target of regulators in the United States. In February, the U.S. Securities and Exchange Commission issued a Wells notice to Paxos over Binance USD (BUSD), and lawmakers have scheduled hearings to explore the collapse of Silicon Valley Bank, which resulted in USD Coin (USDC) temporarily depegging from the dollar due to Circle’s exposure.

Lawmakers in both the U.S. Senate and House have previously proposed different avenues for regulating stablecoins through legislation, but many attempts have failed to pass. Any bill would need approval in both the House and Senate before going to President Joe Biden’s desk to be signed into law.

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