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During this week, Rep. Maxine Waters (D-California) expressed she was “deeply concerned” regarding PayPal (PYPL), a major payment company, as it introduced a stablecoin within the regulatory framework of the New York Department of Financial Services. This move occurred prior to any discussions on federal legislation concerning such cryptocurrency instruments. This event bore resemblances to the past conflict concerning the unsuccessful Libra project, a venture that Waters had also vehemently contested.
However, the situation has significantly changed compared to four years ago. Back then, Facebook, which has since rebranded as Meta Platforms (META), introduced a stablecoin linked to a basket of currencies. This move faced intense scrutiny and pushback from regulators globally. The level of criticism was so overwhelming that it effectively halted the progress of the project known as Libra. Despite undergoing a thorough overhaul in design aimed at placating regulators and rebranding itself as Diem, the project couldn't overcome these challenges and eventually faded away.
Libra stood as a unique matter that fostered bipartisanship - albeit in resistance to the initiative rather than in its support - partly because during that period, additional apprehensions regarding Facebook's handling of user data had temporarily transformed the company into an outcast among politicians.
In contrast, the stablecoin sector appears to have garnered considerable support among members of Congress, primarily from one political faction. Just last month, House Republicans effectively advanced stablecoin-focused legislation via the House Financial Services Committee. Although its approval faced more disagreements than initially anticipated, with Representative Waters herself leading Democratic opposition, the legislation appears poised to gain backing in the Republican-majority House during the upcoming floor vote.
PayPal's recent actions have added a layer of complexity to the prospects of this bill successfully making its way through the Senate. I concur with analysts, as highlighted in an article by CoinDesk's Jesse Hamilton this week. They posit that PayPal's preemptive moves regarding the legislation could potentially strengthen the determination of anti-crypto proponents within the Democratic Party in the Senate, notably exemplified by Senator Elizabeth Warren (D-Massachusetts). This, in turn, might lead to a potential roadblock for the bill's progression in the upper chamber, where Senator Warren's party holds the majority.
However, when considering the larger perspective, PayPal's initiative holds a considerably stronger political stance compared to the universally doubted Libra. The introduction of PayPal's stablecoin, PYUSD, at this particular juncture has garnered approval from the Republican party. Rep. Patrick McHenry (R-North Carolina), the driving force behind the bill and Chair of the House Financial Services Committee, lauded this step as a “clear signal that stablecoins - if issued under a clear regulatory framework - hold promise as a pillar of our 21st-century payments system.” He emphasized that this development amplifies the urgency of advancing the legislation.
Equally significant, PayPal's action comes in the wake of a series of efforts by major players in the financial sector to encourage policymakers to endorse their involvement in the cryptocurrency industry. Prominent names such as BlackRock (BLK), Fidelity Investments, Invesco, and others are actively urging the Securities and Exchange Commission to back resubmitted proposals for the approval of bitcoin exchange-traded funds. Concurrently, Charles Schwab (SCHW), Fidelity, and Citadel are collaboratively seeking regulatory clearance for a novel cryptocurrency exchange. These institutions diligently conduct their groundwork in Washington before embarking on ventures of this nature, a practice shared by PayPal.
People have valid reasons to be worried about the polarization and politicization surrounding the cryptocurrency discourse. However, the situation might not be as prone to a deadlock as anticipated. This is exemplified by the unexpected alignment of six Democratic members on the House Financial Services Committee, who have crossed party lines to endorse a distinct bill proposed by McHenry. This bill aims to establish a comprehensive regulatory structure for the cryptocurrency sector. Notably, the backing of influential companies in the industry adds to the momentum and influence, further suggesting that the impasse feared by many might not be as imminent.
Another advantage for PayPal is its decision to introduce a stablecoin tied exclusively to the US dollar, in contrast to Libra. This strategic move could potentially stimulate greater demand for the US currency on a global scale. Additionally, PayPal's global reach and impact are not as extensive as Facebook's was during the launch of Libra. In its initial form, Libra was linked to a diverse basket of currencies, a feature that raised concerns among policymakers regarding its potential to undermine national monetary control. They were apprehensive that if Facebook's vast user base transitioned to using the Libra token, it could directly diminish the need for their respective domestic currencies.
PayPal could encounter significant opposition from Democrats, characterized by showy oratory, potentially causing a delay in the legislative process. However, it's challenging to perceive this progression as aligning with an erroneous historical trajectory. In the not-too-distant future, stablecoins are likely to benefit from a positive regulatory structure within the United States. This could catalyze a profound transformation in the realm of currency, offering advantageous opportunities for newcomers like PayPal, as well as established entities like Tether and Circle, to capitalize upon.
Source Coindesk
