The Senate Committee on Banking, Housing and Urban Affairs heard from several expert witnesses with knowledge of stablecoins who urged lawmakers to establish a clear regulatory framework but could not seem to agree on where lines would be drawn.

In a Tuesday hearing on “Stablecoins: How do They Work, How Are They Used, and What Are Their Risks?” Hilary Allen, a professor at the American University Washington College of Law, Alexis Goldstein, director of financial policy at Open Markets, Jai Massari, partner at Davis Polk & Wardwell, and Dante Disparte, chief strategy officer and head of global policy at Circle, addressed U.S. senators regarding some of the risks stablecoins may pose to the U.S. financial system and how lawmakers could handle regulating the space.

Goldstein’s written testimony included her views that decentralized finance, or DeFi, projects were “largely out of compliance” with checks on Know Your Customer, Anti-Money Laundering, Countering the Financing of Terrorism, and current U.S. sanctions. She said that because there were “virtually no KYC/AML checks in DeFi applications,” stablecoins like the Pax Dollar (USDP) could be used to convert ransomware payments from one cryptocurrency to another.

Alexis Goldstein addressing the Senate Banking Committee on Tuesday

Massari added that U.S. lawmakers could consider having stablecoin issuers operate under a federal charter rather than potentially requiring them to be insured depository institutions, like banks. According to Massari, having a stablecoin issuer regulated similarly to an FDIC-insured…

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