Not all stablecoins are created equal, as the eye-watering collapse of the Terra “stable-in-name-only” coin highlighted. The existence of well-regulated and trusted alternatives such as USD Coin (USDC) - Circle’s dollar digital currency - has underscored the endurance of a regulation-first model that prioritizes trust, transparency and accountability. So why must Congress act if regulatory oversight at the state level is producing business models that are growing and withstanding the crypto equivalent of a generational stress test? Simply put, the opportunity is to level the playing field with lightly regulated international competition. This will ensure the U.S. not only keeps pace, but is the pacesetter amid fierce jurisdictional battles for which countries and regions will be the domicile of reference for the responsible actors in the crypto-assets market.
This competition is no longer an abstraction and some are likening it to a fierce digital currency space race, where the very global standing of the U.S. dollar as the world’s reserve currency is in jeopardy. Indeed, the concerns that animated the President’s Working Group on Financial Markets’ (PWG) focus on the potentially systemic risks of stablecoins are partly vindicated by the speed with which crypto markets have unraveled. At the same time, typically conservative central bank observers have noted how the firms that survive this particularly frosty crypto winter, may very well be the Amazons of the future. The developers, investors and builders of this open financial infrastructure that is powering Web3 now have international choice for where to consolidate and according to whose value systems, which could imperil U.S. economic competitiveness.
This is why Congress must act to nationally regulate dollar-backed stablecoins – the assets that underpin trillions in economic activity in the emerging digital assets market and are powering an always-on revolution in device-centric banking and payments. The risks, which are well noted in countless international and domestic reports from the Financial Stability Board to the Bank for International Settlements, often overlook the real breakthrough innovation, which has nothing to do with the economic soundness of stablecoins (or bitcoin’s daily price movements), but rather the underlying payment rails. Financial markets and payments infrastructure that can scale to the internet and safely support global commerce and economic activity is a global and national security imperative.
Enshrining U.S. values, regulatory, legal and long-range policy certainty in how this infrastructure is harnessed, developed and employed may very well be the technological contest of our times. Making the U.S. dollar the currency of the internet and powering safe, always-on dollar settlement can advance financial inclusion, promote responsible innovation and drive material gains in financial integrity. Today, for example, USDC enabled digital wallets are available in more than 190 countries and USDC has safely powered more than $5 trillion in cumulative on-chain transactions. Rather than compete with or distort the U.S. financial system or rules-based financial services innovations, Circle stands for building a more equitable model that empowers market participants and empowers people, including those who have been historically marginalized.
How the actual space race was won offers some relevant inspiration to our political and regulatory leadership, which was to provide a national destination despite the risks and the odds. Today’s crypto-assets and stablecoin policy conversation is too heavily dominated by risk, fear, uncertainty and a perilous preservation of status quo, when status quo in banking and payments looks decidedly unfit for the future. With the emergence of broad policy and regulatory frameworks for crypto-assets in other jurisdictions, particularly with the passage of Europe’s far-reaching Markets in Crypto-Assets Frameworks (MiCA), which will be to crypto what GDPR was to privacy, a trans-Atlantic gap may emerge.
Rather than invite regulatory arbitrage in the world’s most essential economic, political and global security relationship, the U.S. should be responsive to the PWG’s call to action on stablecoins, and the Biden Administration’s call for leadership in blockchain and digital assets with the crypto Executive Order. How responsible dollar digital currency innovations (aka payment stablecoins) are nationally regulated is the cornerstone of stability in the otherwise volatile, but vital blockchain finance market.
