Former CFTC Chair on How to Regulate Stablecoins Without Passing Any New Laws

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

So Joe, didn't we say recently that we were gonna be talking about stable coin regulations some more?

Joe Weisenthal (0:21)

There's never enough. You know, I actually, I have, I think there are lots of reasons to continue to focus on stable coin regulation.

Tracy Alloway (0:29)

Why?

Joe Weisenthal (0:30)

Well, I think the biggest one in my mind is this sort of thing I internalized from the great financial crisis, which is that things blow up when they're promised to be stable.

Tracy Alloway (0:40)

Yeah, I think that's exactly right.

Joe Weisenthal (0:41)

And to me, it's like, I know, I do not expect to experience in my lifetime like a Bitcoin crisis, because people know that Bitcoin is-

Tracy Alloway (0:49)

Dogecoin crisis.

Joe Weisenthal (0:50)

Or a Dogecoin crisis. People know that these coins are extremely volatile. They don't bucket them into, you know, parts of their portfolio that are expected to be safe.

And so they can fall like a stock trend, whereas we know that, you know, when something is like AAA or dollar pegged or whatever, that's where trouble can theoretically start.

Tracy Alloway (1:09)

Yeah, so two things there, I totally agree. The other thing is, if you think about crypto broadly, stable coins are really the way in which the traditional financial system interacts the most or one of the most important ways with crypto. So stable coins are interesting because they build up these reserves of financial assets, things like commercial paper.

And there's a concern there that maybe if you had a stable coin experience, a big amount of trouble, that it could affect the CP market more broadly and affect the financial system more broadly.

Joe Weisenthal (1:44)

And also there's a good argument that stable coins are the one killer app of crypto. That people actually use crypto. It's like Tether, USDC. These are huge things, right?

And so we just like, well, what do people use crypto for? Well, stable coins are like popular and widespread and therefore, it's an area to be putting a lot of attention on.

Tracy Alloway (2:05)

Well, also, I think that they promise something, which is the fact that they promise something, which is stability, kind of makes them easier to regulate. Like, you know, what are other crypto tokens actually promising? Like they're not necessarily promising that safety net as you were discussing, but stable coins are. And so it naturally draws in regulatory interest.

Joe Weisenthal (2:26)

And this is a real key point that you bring up, which is that, yeah, like there is this promise.

There is this expectation. You can also sort of judge whether the promise is being kept. Like, does this coin have a dollar in the bank or not? It's like a pretty simple binary question. What would be the equivalent for Dogecoin?

Tracy Alloway (2:48)

Well, more difficult to answer than you might expect sometimes.

Joe Weisenthal (2:51)

Okay, fair enough.

Tracy Alloway (2:52)

But we're going to be discussing all of this with someone who I think comes at it from a very interesting perspective. So we recently spoke to Senator Pat Toomey about this. He was talking about the stable coin bill going through Congress. But what if there was another way to regulate stable coins?

Joe Weisenthal (3:10)

Let's find out.

Tracy Alloway (3:10)

All right.

Without further ado then, we are going to be speaking to Timothy Massad. He is of course a research fellow at the Harvard Kennedy School and also the former chairman of the CFTC under President Obama.

Joe Weisenthal (3:23)

Literally the perfect guest.

Tracy Alloway (3:24)

Yeah, definitely. Tim, thank you so much for joining us.

Timothy Massad (3:28)

Thank you for having me. I'm a big fan of the show.

Joe Weisenthal (3:30)

Thank you.

Tracy Alloway (3:31)

Oh, thanks.

Joe Weisenthal (3:31)

Thank you for saying that.

Tracy Alloway (3:32)

Yeah.

Joe Weisenthal (3:34)

Text in the mail.

Tracy Alloway (3:36)

So why don't we go ahead and, this is a question I asked Senator Toomey as well, but why the interest in stable coins? Like what is it that is drawing this regulatory scrutiny at this moment in time?

Timothy Massad (3:49)

Sure. Well, they're not that big relative to the financial sector, but they are growing very quickly and that's one of the concerns. And obviously, recently when we had that fall in crypto prices and we saw the crash of Terra, which is an algorithmic stable coin, that heightened the concern.

There's a view that these things could grow very quickly and frankly, that there's an opportunity here. They could help modernize payments and increase competition. So I think it is right for regulators to be focused on them. And of course, Facebook's proposal of Libra was really what captivated or really brought regulators to focus in on this.