Today, Sen. Sherrod Brown, Chair of the U.S. Senate Committee on Banking, Housing, and Urban sent letters to stablecoin issuers and exchanges seeking information on how companies are protecting consumers and investors amid the risks highlighted in the recent report by the President’s Working Group on Financial Markets.
Senator Brown emphasized the difficulties consumers and investors may face in understanding how stablecoins work and their potential risks, citing the complicated terms and conditions that many companies hide in the fine print. “I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms,” wrote Sen. Brown in his letter to Circle.
A copy of the letter to Circle is available here and below.
Dear Mr. Allaire:
I write to request information regarding the USDC stablecoin. As documented in the recent report (Report) by the President’s Working Group on Financial Markets (the PWG), stablecoins present investor protection risks and raise several market integrity concerns. Consumers’ increased use of stablecoins, and their importance in effecting transactions in digital assets, underscores the need for greater understanding of the basic operation, and limitations, of USDC.
As the PWG noted, the market capitalization of stablecoins issued by the largest stablecoin issuers exceeded $127 billion as of October 2021, reflecting an almost 500 percent increase over the prior year. The complex terms and conditions applicable to digital assets and stablecoins, as well as the need for reliable and resilient underlying networks, can make it difficult for investors and consumers to fully understand the details of how those assets function and their potential risks. I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms.
Even though stablecoins are typically “minted” in exchange for U.S. dollars, or other conventional currency, the purchase of stablecoins through a trading platform may not provide customers with the same rights and entitlements as a direct purchase from an issuer. In addition, customers may have different rights based on the amount of stablecoins owned or transacted. Furthermore, because the term stablecoin is used broadly, users may not appreciate the complexity and distinct features and terms of each stablecoin.
Accordingly, given the importance of the specifics related to the use of USDC to investors and consumers, please respond to the questions below in clear, straightforward terms. I understand that any response would not affect or change the binding terms or conditions applicable to any particular customer or circumstance, but your ability to provide information that can clarify the basic operational features of USDC is critical to improve the understanding of digital assets.
Please respond to the above by December 3. I appreciate your attention to this matter, and thank you for your timely cooperation.