#298—How stablecoins save America
Also, will Democrats pivot on digital assets?
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This week:
How stablecoins save America
Will Democrats pivot on crypto?
Derivatives regulator to run FDIC
Stuff happens
1. How stablecoins save America
One of the big takeaways from this year’s Coindesk Consensus conference in Austin was that Republicans are fully leaning into crypto in the buildup to this year’s election.
And it goes all the way to the top. Just this week, former President Donald Trump proclaimed that “all remaining Bitcoin” should be “Made in USA.”
Now we have former House Speaker Paul Ryan with an op-ed in the WSJ (via Margaret Slemmer), outlining his belief that dollar-denominated tokens could “stave off a U.S. debt crisis.”
Here’s Paul Ryan:
We might start by taking stablecoins seriously. According to the Treasury Department and DeFi Llama, a cryptocurrency analytics site, dollar-backed stablecoins are becoming an important net purchaser of U.S. government debt. If fiat-backed dollar stablecoin issuers were a country, it would sit just outside the top 10 in countries holding Treasurys—smaller than Hong Kong but larger than Saudi Arabia. If the sector continues to grow, stablecoins could become one of the largest purchasers of U.S. government debt and a reliable source of new demand.
Their emergence as a mechanism for promoting the dollar couldn’t be timelier. The U.S. benefits from the dollar’s status as the primary international reserve currency. Among the perks: cheap, reliable financing for fiscal spending and substantial influence over the global financial system. Most financial activities eventually flow through U.S. banks thanks to the dollar’s dominance. As the global economy becomes more digital and multipolar, the dollar’s primacy is constantly under threat.
…
Promoting dollar-backed stablecoins would follow a well-trodden path and offer clear near-term benefits. There would be an immediate, durable increase in demand for U.S. debt, which would reduce the risk of a failed debt auction and an attendant crisis. Unlike China’s digital financial infrastructure, dollar-backed stablecoins issued on public, permissionless blockchains come packaged with the deeply American values of freedom and openness.
A sound, predictable regulatory framework for stablecoins has bipartisan support in Congress and would help dramatically expand the use of digital dollars at a critical time. In an election year, given all the ugly politics to come, we sure could use a win.
Then there’s Representative French Hill, who, according to Politico, is “running to lead the full Financial Services panel next year” and is a supporter of tokenization with blockchain technology.
Here’s Politico:
“I believe that tokenization offers tremendous cost-savings, better compliance, less fraud, more certainty, compressed time,” Rep. French Hill (R-Ark.), who chairs the House Financial Services digital assets subcommittee, told MM. “It’s an important use of blockchain, both in the financial services industry and beyond.”
Hill, who’s running to lead the full Financial Services panel next year, said he hopes to focus more on tokenization issues moving forward. Some pro-crypto lawmakers have introduced legislation to set the stage for further adoption. A bill from Reps. William Timmons (R-S.C.) and Ritchie Torres (D-N.Y.) would require banking regulators to study asset tokenization.
The crypto industry is supporting the move. A new Coinbase whitepaper shared first with MM touts the benefits of tokenization and urges lawmakers to ensure that assets aren’t regulated differently if put on the blockchain.
Relevant:
The Funding: Do yield-bearing stablecoins have a sustainable future?
Brazil’s CBDC strives to overcome data-privacy ‘obstacle’ as pilot tests evolve
Stablecoin act gives Congress alternative to overriding Biden’s SAB 121 veto
Fidelity International Tokenizes Money Market Fund on JPMorgan’s Blockchain
2. Will Democrats pivot on crypto?
And while it’s great that our representatives are taking digital assets seriously, there’s the risk that crypto will become a partisan issue. But Democrats are waking up as well.
Here’s NYMag:
There were signs that in the weeks leading up to these developments, Democrats had indeed begun to panic about the political implications of being pegged as hostile to crypto. Probably not coincidentally, this occurred after Donald Trump announced that his campaign would accept donations in crypto and that he would “build a crypto army moving the campaign to victory on November 5th!” At a campaign event for holders of Trump’s NFTs at Mar-a-Lago in May, the former president called up Ryan Selkis, an influential crypto entrepreneur who had previously voted for Biden, to speak at the podium, and Selkis threw his weight behind Trump.
“All of a sudden, the Democrats in crypto, the tenor of their conversation on the Hill and their friends in the White House, changed. It went from ‘Guys, you really should pay attention to this’ to ‘Oh my God, we’re going to lose,’” says a person close to the industry. “You’ve listened to Gary Gensler and Elizabeth Warren for so long, and now we’re backed into a corner.” Warren, of course, has been a chief enemy of crypto for years, making her belief that the industry is primarily a scam a core part of her platform. In a campaign ad last year, she included the Politico headline “Elizabeth Warren Is Building an Anti-Crypto Army.”
Pressure had been building on Democrats to extend an olive branch to crypto supporters for months. A Coinbase-backed pro-crypto super-PAC called FairShake, which has raised nearly $100 million this election cycle, helped defeat Katie Porter in the California Senate primary in March, running attack ads against her for being an ally of Warren’s. Recent polls showed that 20 percent of registered voters have owned crypto, amounting to some 35 million Americans, disproportionately made up of young Black men — an important cohort to Democrats. “That’s a very sizable group, and a lot of them are single-issue voters,” says Nickel. “And they were being organized, and real money, material money, was going into it,” says a veteran Democratic strategist.
“This is one of those issues that there’s no one really against it. You’re not going to pick up any new votes for being against crypto,” says the strategist. “There’s only upside politically and policywise to be for it, and only downside politically and policywise to be against it.”
3. Who’s going to run the FDIC?
Here’s the NYTimes:
Christy Goldsmith Romero, a lawyer who spent more than a decade rooting out fraud and other bad behavior at banks that received federal aid in the wake of the 2008 financial crisis, has been chosen to be the next leader of the Federal Deposit Insurance Corporation, the White House announced on Thursday.
Her pick is the first step in President Biden’s quest to quickly replace the current chair, Martin Gruenberg, the bank regulator’s longtime leader, who said last month that he would resign in response to reports of vast workplace abuse and harassment at the agency. If the Senate Banking Committee acts quickly to hold a hearing and a vote on Ms. Goldsmith Romero’s candidacy, she has a chance of assuming the role before the presidential election in November.
In a statement emailed to reporters, the committee’s chairman, Senator Sherrod Brown, Democrat of Ohio, said Ms. Goldsmith Romero “would bring to the F.D.I.C. decades of financial services experience, including valuable experience.”
Relevant:
White House Expected to Nominate CFTC Commissioners to FDIC, Treasury Roles: Reports
Exclusive | White House Prepares to Tap Derivatives Regulator to Oversee FDIC
Biden’s FDIC pick is a Wall Street cop (who talks like a cop)
Via Jun Hiaraga—Pimco Warns of More Regional Bank Failures on Property Pain
Fed leaves interest rates steady, signals only one '24 cut on the way