'They Keep Blowing Up': David Lynch Grills Expert On Making Stablecoins 'As Secure' As FDIC Deposits

2 days ago

During a House Financial Services Committee hearing on Tuesday, Rep. David Lynch (D-MA) spoke about the stability of 'stablecoins'.

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Transcript

00:00Thank the gentleman.

00:01Gentleman yields back.

00:02Gentleman from Massachusetts, Mr. Lynch, the ranking member

00:05of the Digital Assets, Financial Technology

00:07and Artificial Intelligence Subcommittee is recognized

00:09for five minutes.

00:11Thank you, Mr. Chairman.

00:13Ms. House, currently just a couple

00:16of stable coins have about 90% of the market.

00:19Is that correct?

00:21Yes, sir.

00:22Yes, Congressman.

00:23So this market is susceptible to concentration?

00:27It does, yes, Congressman.

00:29So we're looking at Meta.

00:32Meta's got 3.9 billion subscribers

00:37across all its platforms, Instagram and WhatsApp,

00:42as well as Facebook.

00:46And Apple probably has a billion paid monthly subscribers.

00:53What would be the impact if both those firms came in

00:57and just established stable coins?

00:59What would happen to the competitiveness

01:01of the market here in stable coins?

01:05It's an interesting exercise.

01:07I think, first off, it depends on

01:09if there's a regulatory framework that would help

01:11to enable competition and enable protection

01:14for some smaller players to come in.

01:16But without protections against it, I think that the potential

01:20for them to come in and leverage very, very large market shares

01:24with their devices and applications and others,

01:26it's possible that they could take over.

01:28Of course, without protections,

01:30there's still very major players, especially foreign

01:32operating ones that have currently been operating

01:35without much transparency or consumer protection also

01:37that they'll be coming up against.

01:39And if they are able to operate in a fashion,

01:43well stable coins operate a lot like deposits.

01:46So that would break down the separation

01:50between banking and commerce, would it not?

01:52Yes, absolutely.

01:53That's also a major risk.

01:54If you start to conflate those

01:56and you don't have the kinds of protections that we do

01:58in the banking system for good reason to divorce

02:00and separate banking and commerce,

02:02then that would present those major challenges as well.

02:05Mr. Ginn, is that how you pronounce your name?

02:07I don't want to pronounce your name wrong.

02:09Sorry, it's Gwin.

02:10Gwin, I'm sorry.

02:11I'm sorry.

02:12First of all, thank you for your testimony to all the panelists.

02:16You mentioned a couple of times that stable coins should be

02:19as safe and as secure as FDIC insured deposits.

02:23But in the past several years, you know, I sit up here

02:27and I see the collapses.

02:28So we've had at least 20 stable coins just collapse.

02:32We've had every single major stable coin

02:35in the world de-pegged from the dollar.

02:38So we've watched as the Federal Reserve and FDIC had to go in

02:42and rescue Silicon Valley Bank.

02:45I mean, did that not happen?

02:48It certainly did.

02:49And I think the reason.

02:50Okay, I just, because this is the first time any

02:52of you have said that that happened.

02:55We, look, the idea of scientific method is

03:00when you try something and it doesn't work and it blows up

03:03and it causes people damage, you adjust

03:06and you develop improvements.

03:10But we keep doing the same thing over and over with stable coins.

03:13They keep blowing up.

03:15And now we want to.

03:17My time. Now we want to just expand that.

03:20And it just seems like it's inviting a disaster.

03:27I guarantee you, so I read the Genius Act, you know,

03:32over in the Senate.

03:34You know, I'm a little wary

03:35about anything called genius coming

03:36out of the United States Senate.

03:38But there were so many problems with that.

03:41And I'm hopeful that my colleagues, Mr. Hill

03:46and others will amend that vigorously

03:51because it had huge, huge problems.

03:54But, you know, the other piece of this is stable coins,

04:00especially if they offer interest.

04:02Do you support stable coins that offer interest

04:06that are actual deposits?

04:09Are you asking me that question?

04:10Yeah, yeah.

04:11I think if they have.

04:13Yes or no.

04:14It's pretty clear.

04:15Interest bearing stable coins.

04:17I think it's yes if they have appropriate

04:19and calibrated capital.

04:20That's what I was fearful of.

04:22So instead of traditional bank.

04:26Here's the difference.

04:28Stable coins, you know, it's going to take deposits

04:31and it's going to use those deposits as reserves, right?

04:35That's how this thing is going to work.

04:37A normal bank, and it's going to have

04:39to hold those for protection.

04:42A normal bank, traditional bank,

04:44would take those deposits and lend them out.

04:47Lend them out to small businesses, mortgages,

04:50and that type of activity.

04:52I'm afraid it's going to siphon off a lot of the credit market

04:56and will be using those deposits to back the stable coins

05:01to prevent disaster instead of putting that money to work.

05:05Ms. House, is that a legitimate concern?

05:09I think the concerns are founded

05:12in why bipartisan legislation

05:14on a good regulatory framework is critical.

05:16I yield back.

05:18Gentleman yields back.

05:18The gentleman from.

'They Keep Blowing Up': David Lynch Grills Expert On Making Stablecoins 'As Secure' As FDIC Deposits

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