As the end of July arrived, House Financial Services Committee Republicans achieved its goal of passing a bipartisan stablecoins bill. Still, they left D.C. without the broad bipartisan vote Chair Pat McHenry had labored to achieve. The session ended with new recriminations over old disputes, namely the degree of federal vs. state regulation in a new regulatory framework, casting a dark cloud over the prospect of legislation that could garner support from McHenry, Ranking Member Maxine Waters, and the Biden White House.
Then, PayPal and Paxos entered the chat with the surprise unveiling of PYUSD, which may be the accelerant needed to forge compromise in D.C. and bring about the legal enshrinement of a comprehensive regulatory framework for stablecoins. It may also represent a new, more aggressive strategy for how American fintech companies deal with the federal government and D.C. regulators.
PYUSD’s launch is monumental because it comes from one of the world’s largest digital payment companies, which boasts 430 million accounts. With the flip of a switch, hundreds of millions of users can access and transact in stablecoins through a service with which they are already familiar. This will speed up crypto adoption and make the ecosystem more challenging to bring to heel through Congressional action.
The prospect of a significant market participant exploring a stablecoin project is a dynamic John Rizzo, Senior Vice President for Public Affairs at Clyde Group, observed up close while serving as a senior spokesperson at the U.S. Department of the Treasury in 2021 and 2022. During this time, the federal government attempted to implement a comprehensive regulatory framework for stablecoins in the backdrop of Diem, Meta’s stablecoin project’s failure during the summer of 2021 (when it was announced, the project was known as Libra and Meta was called Facebook).
PayPal is not Meta/Facebook, but the prospect of hundreds of millions of users soon having easy access to a stablecoin on a platform they already use and are comfortable with creates a new urgency for lawmakers in D.C. to reach a compromise on a regulatory framework for stablecoins. This didn’t exist when just a handful of Democrats voted in favor of Chair McHenry’s stablecoins bill.
The unveiling of PYUSD has changed the legislative and regulatory calculations for Democratic policymakers. It has also ushered in a new era of how American crypto market participants engage with D.C. Unlike Libra’s stablecoin project backers, PayPal and Paxos did not extensively seek D.C. policymakers’ approval before launching its token. This is because PayPal’s core business, money transmission, is regulated through a state-by-state licensing regime, meaning the federal government’s ability to impose a cost on PYUSD’s backers for launching a stablecoin without seeking prior approval is limited.
Supporters of stablecoins and market participants now have leverage over the federal government, including regulators and lawmakers, in a way that didn’t exist weeks ago. This could grease the wheels for a comprehensive regulatory framework for stablecoins in Congress and begin an era in which American crypto companies force the federal government to deal with them on their terms.