Congress Explores Stablecoin Laws With Tether In Mind

February 12, 2022 3:28 pm

As the government and Congress are continually aware of the growth of the digital asset industry, one segment that has emerged is the utility of stable coins in the digital economy.

For a while, Congress has been exploring new laws and policies for stable coin issuers with the focus of ensuring that strict requirements are satisfied such as clear verification of reserves.

There were no specific names that were mentioned throughout the discussions, but the overall conversations all seemed to allude to the very well-known stable coin Tether which has been the subject of regulations in the past few years due to uncertainty about whether the stable coin issuer actually has the reserves to back up the value of its stable coins.

The overall tone indicates that Congress intends to ensure that something like Tether does not emerge again within the digital asset industry.

TheBlockCrypto reports:

For context, the House Financial Services Committee and the Senate Banking Committee have been hosting Treasury undersecretary Nellie Liang’s testimony on stablecoins.

The two hearings — one this week, one next — come as a follow-up to a report on stablecoins from the President’s Working Group on Financial Markets, a report that Liang spearheaded.

The PWG report specifically focused on the risks that unbacked or underbacked stablecoins could pose to investors holding them, which has been a central concern of those examining the subject.

Though the report itself avoided naming specific firms, Tether is top of mind for many lawmakers, as demonstrated by this week’s hearing in the House.

In prep materials seen by The Block, committee staffers specifically named Tether as a currency not fully backed, noting among issues “User protection: many are not fully backed by reserve currency (e.g. Tether).”

In the exchanges that went back and forth between Liang and Posey, the primary focus continues to be about what assets does Tether use to actually back up the value of its coins.

Liang made a comment about Tether possibly using assets that are risky in nature as collateral and mentioned concerns about Tether not being able to deliver given that they are not a regulated entity.

In the hearings in December, it seemed like that it was not a coincidence that there was no mention of Tether although there was featuring of executives of other top stable coin issuers.

The topic of stable coins is now scheduled to head to the Senate Banking Committee on February 15 where new comments and concerns will be brought forth for the committee.

The Block shares details:

Among those concerns are the fact that Sherrod Brown (D-OH), the committee’s chairman, was frustrated while trying to contact Tether’s executives.

Even in February, Brown’s office would not tell The Block whether they had received responses from all of the issuers contacted.

In a February 9 hearing before the Senate Agriculture Committee — one at which Brown made a surprise appearance — one of the witnesses presented the same problem.

University of Pennsylvania professor Kevin Werbach lamented to the committee, “The stablecoin Tether continues to play an outsized role in the digital asset world despite having been found to be lying about their backing.”

In a statement to The Block, Tether said: “Tether has led the way in shedding light on the composition of its reserves.”

The firm further pointed to its latest attestations as showing a “clear reduction in commercial paper investments in percentage terms.

The reduction in commercial paper exposure comes as a response to community feedback.”

Many in the crypto community wonder what the effect will be if Tether ever does implode and how that would change the digital asset markets.

As of now, there are many top contenders in the industry including USDC by Circle and TrueUSD.

Currently, Tether is the third top ranked crypto with a total market capitalization of $78 billion which places it directly behind Ethereum.

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