Decrypt Editor-in-Chief Dan Roberts joins Yahoo Finance Live to discuss the outlook for lawmakers’ regulation of cryptocurrency, the implementation of stablecoins, and crypto traders’ distrust of centralized blockchains from governments.
Video Transcript
BRAD SMITH: The House Financial Services Committee gathered today for a crypto hearing on digital assets and stablecoins. This hearing follows the international finance discussion papers published by the Federal Reserve in January acknowledging stablecoins’ growth potential and impact on this new type of particular transactions as well. And we’ve got more from this hearing. Let’s play a quick clip from what took place.
– The report recommends that stablecoins be issued by insured depository institutions. And in that sense then, stablecoins would not be– would not recommend that stablecoins be issued by technology companies. This is the issue of the separation of banking and commerce has been an issue that Congress has grappled with for many years. In this case, we believe stablecoins as a payment instrument should not be issued by a technology firm.
BRAD SMITH: And joining us now with more, we’ve got Decrypt editor-in-chief Dan Roberts. Dan, thanks so much for joining us on this day, where we know the hearing was taking place. As we mentioned, this followed what the Federal Reserve had published in January about central bank digital currencies, also acknowledging stablecoins’ growth potential and impact on banking. Is there anything from today’s hearing that sets up any type of acceleration in either legislation or advanced dialogue, at least, on the very matter of stablecoins?
DAN ROBERTS: Well, I don’t know about an acceleration. But I think in many ways, it confirms our reporting from two weeks ago, I mean, the clip you just played. Basically, we wrote a big story on how the Biden administration would like to bring control of the stablecoin market into the hands of the big banks that they trust, or at least think are above board, FDIC-insured. You heard it right there. They are aware of the big growth of stablecoins, and it concerns them.
Not all of them, but many, Democrats especially, which has been interesting. And they would like to curb the rise of stablecoins that are issued by technology companies. So of course, that’s the leading centralized stablecoins right now. That’s Tether and the company behind that is Tether. That’s USDC, and the company behind that is Circle. And that’s USDP, and the company behind that is Paxos.
What we have reported, and I think the hearing today confirms it, is that the administration would like to not kill stablecoins, but bring them under government-trusted entities’ control. Maybe that’s banks, maybe that’s agencies and regulators. It’s quite a plan. And it’s interesting because they see the stablecoin market as their way in, their door through which to kind of curb the whole crypto industry, either rightly or wrongly.
And I should say, the other highlight to me was the different opinions that we heard from some folks today. They’re not all on the same page. And that’s clearly a problem. Brad Sherman, who is the congressman from California, who’s a Democrat, said that he sees crypto as akin to subprime mortgages, which doesn’t make much sense, and said that it could be a threat to people of color. Meanwhile, Gregory Meeks in New York, also a Democrat, said that he believes crypto offers new opportunities for the unbanked and underbanked. So a lot of these lawmakers are not on the same page. They just know that they’re concerned about stablecoins.
EMILY MCCORMICK: Dan, what’s happening based on your reporting at some of these companies currently issuing stablecoins, who perhaps aren’t FDIC-insured, perhaps aren’t under that umbrella category of non-banks that follow specific rules that would be warranted under what’s currently being proposed out of Washington? Is there a lot of concern about upcoming regulation? And if so, how are they handling this?
DAN ROBERTS: I think there’s a lot of concern about upcoming regulation. Absolutely, you nailed it. They kind of are in a push and pull where they can’t ignore these regulators who are issuing potential new guidance. Of course, nothing is official yet. For example, that Fed report also invites public opinion. You can imagine what the public opinion they’ll get from the crypto industry is. It’s, stay away from us.
But there’s a tension here, right, between the people who have come into crypto who are more traditional, cautious, conservative investors and, years ago, wanted nothing to do with crypto. Now they’ve changed their tune. They like crypto as an investment. They want to see more regulation. They want to see safeguards and rails. They think more regulation would be healthy for the space.
The crypto purists, in many cases, the people who are now pushing these decentralized stablecoins, they would like regulators to stay away. If you are a tech company or crypto company in the middle that offers a token or a stablecoin, it’s a tough one because you are being told you have to comply with KYC, Know Your Customer, and AML, Anti-Money Laundering rules. And you think that we better comply, but at the same time, there have been crypto companies that have grown quite a bit that haven’t complied and have, so far, kind of gotten away with it.
So you’re eyeing what the lawmakers are saying. In some ways, you’re skeptical that they’re actually going to really ever do anything, but you’re also concerned because if they issue some kind of new format or framework like, say, the BitLicense in the state of New York years ago, then you’re going to have to make a real decision here about to what extent you comply.
BRAD SMITH: The kind of stablecoins that are hoped to be launched in 2022 as well are also hoping that regulators will approve additional protocol, additional blockchain protocol. As of right now, as the international finance discussion papers have noted, most existing stablecoins, they circulate on public blockchains, Ethereum, Binance Smart Chain, or Polygon. And so is the best way forward, or perhaps the best chance way forward, for a new stablecoin to get approved in this environment for it to be on an open source protocol?
DAN ROBERTS: Well, Brad, I mean, that’s the problem right now with the very concept of blockchain. I mean, in some ways, we’re starting to get shades of 2018. The joke in the crypto industry is that the narrative in 2018 was blockchain, not Bitcoin. That’s when you had companies, financial institutions, banks, coming out and saying, we like blockchain. We’re experimenting with our own blockchain. In crypto, we don’t really want to touch that.
And what crypto purists say is, well, the whole point is that blockchains run on cryptocurrencies to settle the transactions. You have to have a token. And so, you know, when you hear the government talk about either centralized stablecoins or permissioned, closed blockchains, a lot of people who’ve been in crypto since the beginning say that defeats the whole purpose. So really, what your question gets into a little bit, too, is the idea of these CBDCs, Central Bank Digital Currencies.
China has already done it. Theirs is off to the races. The digital Yuan, it’s accepted as payment. It’s being used at the Olympics right now. The US has basically said it’s something we’re looking into. And what crypto advocates say is, who wants that? There’s no reason for a government-backed cryptocurrency. And so same thing when you talk about centralized stablecoins. If it has to run on a blockchain that a government-backed entity controls, well, then, that’s not crypto.
BRAD SMITH: Dan Roberts, Decrypt editor-in-chief, we appreciate the time and the breakdown on this matter. We’re going to continue to see where the dialogue moves forward from here on the Hill as well. Appreciate it, Dan.
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