US Stablecoin Bill Delayed, but Draft Language May Soon Emerge

A potential bipartisan bill to regulate stablecoins has been bogged down in negotiations, according to three people familiar with the talks, but lawmakers developing the legislation are considering releasing some draft language that may spur wider input.

With Congress’ legislative efforts, it’s common to see a fast-moving bill suddenly slowed down by debate as it gets close to the finish line. The hangups over this U.S. effort to establish rules for stablecoins – digital tokens designed to maintain steady valuations by being tied to assets such as the dollar – are expected to delay it until September, when the lawmakers return from their summer break, the people said.

Meanwhile, the committee is talking about issuing a discussion draft – a document that would include the legislative language the members are working on, the people said. That could happen much sooner.

The narrowly focused bill aims to establish a U.S. oversight regime for stablecoins, on which crypto markets depend to counter the volatility of more speculative assets. The bill is expected to set a path for nonbank firms to be able to issue stablecoins, though they’d have to meet new capital and liquidity standards. The bill would also ban commercial companies from becoming issuers, people familiar with the effort have said. And when the Treasury Department sought to expand the bill into another area of consumer protection, the negotiations slowed, one of the people said.

Stablecoins such as Tether’s USDT and Circle Internet Financial’s USDC represent a relatively small slice of the $1 trillion in overall crypto value but are traded at very high volumes because they’re often used by investors to move in and out of bitcoin (BTC), ether (ETH) and other coins.

If lawmakers from both parties can find common ground by September, Chair Maxine Water (D-Calif.) of the House Finance Committee can schedule a markup, which is an open session inviting debate or changes to the details of legislation before it gets a vote in the committee. She’s been negotiating with the panel’s ranking Republican, Patrick McHenry (R-N.C.), and in recent days, the two have briefed the other members of the committee, the people said.

Treasury Department officials – including Secretary Janet Yellen – have also been involved in the discussions with lawmakers, according to one of the people. An administration push for further investor protections caused the latest rift in the talks over the weekend. The Treasury Department and Democrats added a request that the bill include safeguards for customers' wallets, specifically that their money be walled off from the assets of crypto platforms hosting the wallets. The Biden administration has been seeking answers for this consumer hazard since Coinbase (COIN) disclosed that customer funds may be vulnerable in a hypothetical bankruptcy and other crypto firms began freezing customer accounts as they faced their own real-world failures.

Republicans pushed back on that widening of the bill's scope and argued in favor of state-based standards for wallets, but Treasury officials have made it clear that the department won't endorse a bill without the federal protections, the person said.

If the bill manages to survive the House, the next hurdle could be Sen. Sherrod Brown (D-Ohio), the chairman of the Senate Banking Committee. He’s been highly distrustful of the crypto industry, but his views on this legislative effort aren’t yet clear.