Dividing Lines Were Drawn During Senate Banking Hearing on Stablecoins

Senate committee members generally stuck to party lines while discussing use, benefits, and drawbacks of stablecoins with skeptical Democrats and supportive Republicans.

On Tuesday, the Senate's Banking, Housing, and Urban Affairs Committee discussion was polite but divided regarding the topic of stablecoins and the cryptocurrency industry in general. As background, stablecoins are a class of crypto pegged to underlying assets such as the U.S. dollar, gold, bonds, and more. That linkage serves as a valuation anchor that's supposed to make stablecoins less volatile and more "stable" than other cryptos.

Upper house divided on benefits and drawbacks of stablecoins

Sen. Sherrod Brown (D-OH), who chairs the banking committee, arranged for the session and fired the first salvo against stablecoins in his opening remarks. "Let's be clear about one thing -- if you put your money in stablecoins, there's no guarantee you're going to get it back," said Sen. Brown. "And if there's no guarantee you'll get your money back, that's not a currency with a fixed value -- it's gambling. Stablecoins, crypto markets aren't actually an alternative to our banking system, it's a mirror to the same broken system with even less accountability and no rules at all."

At the other end of the political spectrum, ranking minority member on the committee, Sen. Patrick Toomey (R-PA), presented a framework for regulating stablecoins, lauding their benefits and usability -- particularly for small businesses, which employ nearly half of U.S. workers. "Stablecoins are beginning to be used for small businesses payments and international remittances. While traditional payment systems can be expensive and take several days to settle, transferring funds via stablecoins is low cost and nearly instantaneous," said Toomey.

Hottest rhetoric from Sen. Warren

The Senate's session clocked in at less than 90 minutes duration compared to the House's hearing last week, which was nearly five hours long and was characterized as being "very productive and constructive" according to nearly all speakers and attendees. That was not the case during the Senate's version, and Sen. Elizabeth Warren -- a vocal critic of crypto -- provided the sharpest zinger blasting decentralized finance (DeFi) as the most dangerous sector of cryptocurrency. "This is where regulation is effectively absent -- and no surprise -- it's where the scammers and the cheats and the swindlers mix among part-time investors and first-time crypto traders."

Witnesses from industry and academia

As expected, the bulk of the discussion among committee members followed party lines. There were also four witnesses from academia and industry who ended up providing expert testimony during the hearing and answering questions from the senators.

• Ms. Alexis Goldstein, director of financial policy, Open Markets Institute
• Ms. Jai Massari, Partner -- Davis Polk & Wardwell, LLP
• Mr. Dante Disparte, chief strategy officer and head of global policy, Circle
• Professor Hilary J. Allen -- American University Washington College of Law

While no decisive action came out of the Senate's session -- same as with the House Finance Committee hearing -- it's clear that congressional conversations around stablecoins and crypto will be ongoing.