Stablecoins Under Scrutiny as Congress Moves Towards Regulation

Stablecoins, digital assets designed to maintain a stable value, facilitated $15.6 trillion in transactions last year, marking a substantial increase in their use. With the continued expansion of the stablecoin market, Congress is clearly motivated to provide some regulatory clarity sooner than later. Senate Banking Committee has moved important legislation governing stablecoin operations and issuance. At the same time, the House Financial Services Committee has advanced their own important measures in this space.

Stablecoins are different than cryptocurrencies such as Bitcoin which have a history of exceeding price volatility. These new digital currencies are backed by one particular reserve asset. Most of the time, they’re pegged to the U.S. dollar to ensure they stay stable in value. Stablecoins have grown in popularity as a trusted method for making payments and preserving wealth. They now have over $230 billion behind these assets.

Despite their rapid growth and adoption, a stable regulatory framework for stablecoins in the United States does not currently exist. To address this problem, the Senate Banking Committee advanced the Genius Act to the floor. Ironically, at the very same time, the House Financial Services Committee advanced the Stable Act. These bills provide a blueprint on how stablecoins should function. They decide who may issue them, setting the stage for far-reaching preemptive oversight.

The Securities and Exchange Commission (SEC) sees covered stablecoins as a form of payment instrument or value saving medium. So long as they adhere to specific guidelines, the SEC does not consider them investment vehicles or securities. This determination is critical, as legislators continue to attempt to develop specific regulation for these emerging assets.

It’s no surprise, then, that some of the major financial players have jumped into the stablecoin arena. PayPal makes history as the first significant brand to issue an official stablecoin. Tether, the third largest issuer, just announced record profits of $13 billion for 2024. This underlines both the financial opportunity and the growing market for stablecoins.