The House Financial Services Committee on Tuesday held a hearing to discuss potential regulations for stablecoins, which are private digital currencies designed to maintain a stable value relative to the U.S. dollar or other underlying assets. 
The committee heard testimony from Treasury Under Secretary for Domestic Finance Nellie Liang, answering questions about the recommendations outlined in a report by the President's Working Group on Financial Markets.
One of the main sticking points between Liang and lawmakers was over whether stablecoin issuers should be regulated as insured depository institutions (i.e. banks). 
While stablecoins often claim to have one-to-one backing in cash or cash equivalents like short-term debt, a lack of oversight and transparency in the industry has left regulators in the dark about what's actually in those reserves. 
The fear is that a major run on stablecoins would show that issuers did not, in fact, have the assets they claimed, making them insolvent and leading to a cascade of financial turmoil.  
Treating stablecoin issuers like banks, Liang argued, would help submit them to proper reserve requirements, so that regulators can make sure good assets are backing up those pegs. 
"If stablecoins are backed by high-quality assets, their risk is quite low," Liang said. "But if they're not supported and there's questions about the quality of the reserve assets in the reserve pool backing them, then they create risk."
Lawmakers were sympathetic to the concerns about risks but pushed back against the idea that all issuers should be regulated as banks.
"We cannot regulate out of fear of the future," said Rep. Patrick McHenry (R-N.C. 10th District), a long-time champion for the crypto industry.  "Requiring stablecoins to only be issued by banks would be a major obstacle for us to continue fostering innovation in this nascent industry." 
He and other lawmakers argued that stablecoin issuers in some respects operate very differently than banks. Specifically, they don't engage in lending or use leverage. 
"Here's the bottom line, banks should not be the only institutions in the ecosystem with dibs to issue the potential array of financial products that the President's Working Group report simply lumps together and ties as a stablecoin," said Rep. Tom Emmer (R-Minn. 6th District), who is chair of the Congressional Blockchain Caucus. 
Liang countered that some major stablecoin issuers, such as USDC issuer Circle, are already seeking a banking charter. 
"I think many of them are comfortable with the idea of an [insured depository institution] bank charter," she said. "Some are pursuing it. Some are already within the regulatory perimeter, even on their own. Again, we're balancing innovation and safety." 
However, she did suggest that the administration was potentially open to other types of regulations, specifically the idea of requiring some kind of money transmitter license. 
"I think that is a possibility definitely worth exploring," she said. 
The debate highlights how both lawmakers and the Biden administration seem to agree that some kind of regulation is in order. What's in question is who will take charge. 
Draft legislation from Rep. Josh Gottheimer (D-N.J. 5th District) balances these two approaches, following the recommendations of the report while also leaving room for non-bank regulations. 
The legislation still seeks to ensure that issuers are 100 percent backed, and would require them to reveal what's in their reserves and submit themselves to oversight by regulators. 
Overall, Republicans and Democrats were much closer together on the issues than at past crypto hearings, suggesting a viable bipartisan bill could be on the table. 
"I'm very concerned that if we sit here and let partisan games get in the way of getting a bill done, it would be a huge mistake," said Gottheimer.