Thread by @jentaub

Looks like a bubble. We have been here before. “The only people to walk away unscathed are the big guys. . .If you put your money in Stablecoin, there’s no guarantee you’re going to get it back” — @SenSherrodBrown

banking.senate.gov/hearings/watch…

And Senator Toomey offers up what sounds like industry talking points. Years from now, when all this comes crashing down, pundits will say “no one saw it coming” and the taxpayer-backed bailouts for the big guys will commence

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Our first witness is @alexisgoldstein. Today stablecoins are traded, not used for purchases. Hard to redeem and convert to cash. Have no benefit for financial inclusion. Fees add up if you want to send to a friend or another wallet

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Platforms on defi don’t comply with KYC rules (know your customer) or other money laundering compliance regulations. Also if hacked turn to government law enforcement, @alexisgoldstein explained

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Attorney Massari. Witness from Davis Polk (top tier corporate law firm with big bank clients, expertise in financial market regulation).

Says FDIC insurance is not necessary if stablecoin issuers has 100% assets backing coins issued.

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Chief Strategy Officer of Circle, Dante Disparte. Circle offers the stablecoin USDC.

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Link to his written testimony

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circle.com/blog/written-s…

Here’s @alexisgoldstein’s written testimony

banking.senate.gov/imo/media/doc/…

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Current witness is Professor Hillary Allen. She recommends banning insured deposit taking institutions from issuing or taking stablecoin deposits

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Senator Brown asked whether Stablecoin would make a good payment system. @alexisgoldstein said “It often makes Western Union seem cheap” — transferring assets on ethereum. So not promising as a payment system

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Link to Hilary Allen’s testimony

banking.senate.gov/imo/media/doc/…

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Senator Brown notes name US Dollar Coin (USDC) appears misleading. Asks Dante Disparte whether it would be legal for Circle to sell metal coins. He said no.

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Senator Toomey asks about future of Stablecoin. Disparte VISA allows 70 million merchants to use USDC.

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Here’s a link to Jai Massari’s testimony

banking.senate.gov/imo/media/doc/…

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Senator Reed is up with questions. Wants to address Fed’s ability to control the money supply. Said central banks are also interested in financial stability concerns. Notes that Fed is creating a competing digital coin

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Professor Allen agreed with @SenatorReid that there is a role for the OFR. (Office of Financial Research) created with his support by Dodd-Frank.

See my 2011 piece on OFR

papers.ssrn.com/sol3/papers.cf…

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Senator Rounds asks Alexis about high costs in bringing stablecoin from digital ecosystem to real dollars (fiat currency).

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Senator Daines calls for a bipartisan approach

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Jai Massari of Davis Polk recommends an optional federal charter for stablecoins.

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Senator Tester says cryptocurrency as described by industry sounds like synthetic mortgage-linked securities in the lead up to the crisis. “for some there isn’t anything real behind them” Asks if Allen agrees. She does. Be wary of inclusion promises.

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Also, Allen said if a retail customer has trouble often there’s no one to reach for help on the exchange

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Senator Warner supports innovation, but is concerned that this technology is being used for illegal and illicit purposes. Said Virginia system being broken into has to pay off ransom in some kind of cryptocurrency and stablecoin will be part of it to convert back to fiat

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Warner is suspicious about how anyone can make enough money even off just the float if they don’t have leverage and they have safe assets a dollar to dollar cryptocurrency. Asks Alexis had a few ideas but said ask Mr. Disparte. Also asked the Davis Polk lawyer

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Disparte likened it to PayPal? Float?

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Here comes @SenWarren. She asks @alexisgoldstein the “stablecoin talk match the stable coin reality?” Warren uses Tether as an example. Not one for one. And cannot actual redeem 10 stablecoin for $10.

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Hilary Allen said that although stablecoins do not engage in maturity transformation, a run on them would be similar to the run on the money market funds in 2007, or what we saw with the Mexican peso if customers lose confidence

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.@SenWarren said because of ties to the distributed finance (DeFi) system stablecoin could threaten that as well.

Allen said DeFi could become intertwined with traditional finance system and threaten that. And DeFi needs stablecoin should not be allowed to feed that growth

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Signing off now from this hearing to go watch some other announcement.

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