On Wednesday, Maxine Waters, the Democratic Congresswoman, took issue with the foray of financial giant PayPal into the world of stablecoins.
She argued that the company should not have developed a dollar-pegged stablecoin before a regulatory framework is developed on a federal level.
The concerns
In a written statement, the democrat said that she was concerned that even though there is still no regulatory framework for stablecoins on a federal level, PayPal has decided to launch their own.
She went on to say that federal enforcement and oversight is essential in terms of PayPal’s stablecoin operations because of the reach and size of the company.
The PYUSD stablecoin had been announced by PayPal on Monday, which is based on the Ethereum blockchain and will be issued by Paxos.
It is expected to go up against other well-known stablecoins in the market namely Tether (USDT) and Circle (USDC).
The stablecoin market has a total capitalization of about $125 billion and these tokens are usually pegged to the price of a fiat currency, such as the US dollar, or they are backed by assets.
The regulation
Jerome Powell, the chairman of the Federal Reserve, has stated that there should be a ‘robust role’ of the federal government in the regulation of stablecoins.
However, it is the New York Statement Department of Financial Services (NYDFS) that primarily regulates Paxos.
In April, Waters said that she had been surprised to find that there was a framework for stablecoin regulation in New York.
Speaking on Wednesday, the Congresswoman highlighted the need for oversight of stablecoin issuers by federal agencies.
The collapse of the algorithmic stablecoin UST of the Terra blockchain last year spurred lawmakers into action, as it wiped out about $40 billion from the market.
However, there has been very little progress since then. Waters said that federal guardrails are a must because stablecoins are actually a new form of money.
She went on to say that the money supply and the monetary policy are the responsibility of the Federal Reserve and they should be able to do their job.
More details
On Tuesday, before Waters had made her comments, the Fed had published a blog post in which it promised that they would provide guidance to American banks relating to stablecoin issuance.
It talked about the Know-your-Customer (KYC) rules, record-keeping, and also the irreversible nature of transactions.
A stablecoin bill had recently been advanced by the House Financial Services Committee, which is led by Republicans.
The chairman of the Committee, Patrick McHenry said on Monday that it was time for lawmakers to get the job done after PayPal’s stablecoin announcement.
He stated that it was time for Congress to come up with legislation for regulating digital assets, especially where stablecoins are concerned. He said that they had now reached a crossroads.
Waters is also part of the Committee and said that the plans of the Republicans to move forward with the stablecoin bill are ‘problematic and toxic’.
She believes it would put consumers at risk and would also reduce the influence of the Fed over the economy.