‘An ugly baby’: Rep. Patrick McHenry confident stablecoin legislation will get passed

McHenry has been negotiating for months with chairwoman Maxine Waters (D-Calif.) over a stablecoin bill, with Coindesk and Politico reporting that negotiations remain tenuous.

As elections approach, experts believe time is running out for this legislative session, although both lawmakers are expected to win their races in November. McHenry warned in September that “big policymaking in an election year is hard.”

Amid a year of exploits and high-profile failures, stablecoins ostensibly offer calm and utility in the turbulent crypto industry, although the collapse of projects like the algorithmic stablecoin TerraUSD have put the technology under the spotlight.

As McHenry said on Wednesday, there is not only a lack of federal regulation for stablecoins, but also a lack of a shared definition of what actually composes a digital asset.

“It doesn’t look like a modern regulatory regime,” he told the audience. “It actually looks pretty retrograde.”

While McHenry said that he and Waters have a shared understanding over the definition of a stablecoin, and what they should be backed by, there is still ongoing discussion around how stablecoins can be held, the regulations around wallets, and which federal regulator should provide oversight, which he described as “less of a science and more of an art.”

One of the key questions around crypto regulation is the divide of oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission, which extends to stablecoins.

Despite the gap, McHenry said that tradeoffs were inevitable because of the bipartisan nature of the negotiation. He described the current status of the legislation as an “ugly baby.”

“It is a baby nonetheless, and we’re grateful and hopeful it can grow and prosper into something that is a lot more attractive,” he said.

The pending stablecoin bill is one of several options floating around Congress, including another House bill called the Digital Commodity Exchange Act of 2022. Critics have argued that it lacks the robustness of other proposals.

Stablecoins are likely to be at the forefront of whatever bill Congress settles on. The Financial Stability Oversight Council—a panel of top financial regulators including the Treasury Department, the SEC, and the CFTC—released a report last week recommending that Congress pass legislation to create a federal framework for stablecoin issuers.

Speaking at an event hosted by the Bipartisan Policy Center on Wednesday, FTX founder Sam Bankman-Fried described stablecoins as “the lowest-hanging fruit” that regulation could address to reduce risk.