Congressmen seek clarity from SEC chief Gensler, on yield products, stablecoins

Congressmen Warren Davidson, Tom Emmer, Ted Budd, Anthony Gonzalez, and Trey Hollingsworth have addressed a letter to the U.S. SEC Chair seeking clarity around crypto rules.

The development comes after a recent report by Bloomberg, discussing the SEC’s “significant authority” over tokens like Tether. Citing sources, it had said that an upcoming regulatory report by the US Treasury is set to establish SEC’s overarching authority in the sector.  

On the back of that, Davidson stated,

“The crypto industry deserves regulatory clarity when it comes to yield products and stablecoins.”

He further added that he’s requesting this clarity from the ‘SEC so that innovation can thrive in the USA.’

In the past, the SEC chair had called for more investor protection in the DeFi ecosystem. It led to a series of crackdowns in the industry, shutting down Coinbase’s crypto Lend program and an investigation into stablecoins. Meanwhile, other crypto firms like Celsius Network and BlockFi Inc. were also under the watchdog’s radar for similar offerings. 

In this context, Congressman Emmer had argued that Gensler “believes that almost all tokens are security,” adding that he “adamantly disagrees” with it. 

Therefore, now in the letter, the Members of Congress request ‘additional information on SEC’s interpretation of existing case law.’ They specifically seek information around asset-backed stablecoins and crypto yield products.

They cite previous case laws of Marine Bank v. Weaver and Reves v. Ernst & Young to seek clarity and avoid ‘innovation-dampening uncertainty.’ 

It is noteworthy that the Reves caselaw is often used to identify if a transaction involves a “security.” In the case of Marine, the Supreme Court had opined that the definition of “security” is context-dependent, as noted by crypto lawyer Byrne.

Having said that, the above-signed Members of Congress expect a written response from Gary Gensler by ‘no later than November 19, 2021’ on the mentioned key issues: 

• What type of bank and bank-like regulations under the Reves case would remove the need to apply the securities law while issuing stablecoins or yield products. 
• What aspect of the regulations, that include rules like permissible investment standards and minimum capitalization, is sufficient to protect investors. Conversely, if any aspect of the existing framework is insufficient for investor protection. 

Meanwhile, Rostin Behnam, acting chairman of the CFTC recently stated that the commodities regulator should be the primary watchdog for crypto. Therefore, the upcoming regulatory report and the SEC’s response to Congress would be something to watch out for.