PayPal's Stablecoin Could Propel Creation of a 'Federal Regulatory Framework': Former CFTC Chair Massad

The state of crypto is presented by Ron connecting the world to the power of Cryptocurrency. Paypal's P USD marks the first time a major financial firm is backing its own stable coin. Joining us now to discuss what that means for us. Crypto regulation is Timothy Massad, former CFC chairman and current director of the Digital Assets Policy project at the Harvard Kennedy School. Welcome Tim. Good to see you back on the show. I'm so happy you're here today because there's so much to talk to you about. Um It's great to be here. Thank you for having me. This is your perfect person to kind of tease because this is, this is very, there's just a lot of confusing things going on right now because on the one hand, you know, we still have this sort of stable coin, I don't know, paralysis in Washington, right, which you know more about, than, than almost anybody, even though we've made some incremental gains, it's still not really going anywhere. And then we have this massive stable coin news on the other hand, so let's just like, could you just sort of put this all together for us because you know, we had, um, on yesterday sort of talking about this as, you know, this is a, this is a regulated stable coin because they are regulated as a trust in New York. But then there still isn't really a stable coin regulations. So, like, is this a step forward for stable coins or, or I just, how, what's the big picture story here? Sure. Well, let me just first say I am an adviser to paypal. So I wanna make sure everyone's aware of that on the, on the overall stable coin regulation front. You know, I've called for uh creating a federal framework now for some time and I still think we need that. Now, we saw the House Financial Services Committee pass a bill. Uh Unfortunately, it didn't have as much democratic support as I would have liked. And I think, you know, the Democrats, uh many of them on the committee felt like it still wasn't quite designed properly in terms of establishing adequate, minimal federal standards. You know, we have this issue of, we want to have some sort of state chartering ability just as we do with banks. But how do you make sure that doesn't lead to regulatory arbitrage to a race to the bottom? I would hope that issue, you know, could still be talked about and maybe the committee can still come up with a compromise that makes it more of a bipartisan approach. Um Of course, though, we still have the Senate where it's very hard. Uh, but, you know, you refer to what international jurisdictions are doing and many of them are moving forward. Uh Singapore Europe, the UK, the UAE. And that could also, you know, prompt the US to move a little faster on the paypal announcement. Um, you know, this is a major step. It is, as you note the first time a, a, uh traditional finance company has launched its own stable coin. Frankly, it's also to me, one of the first times that a traditional financial company have said, we think this technology has value outside of crypto. You know, we've seen Fidelity Black Rock and others say we want to enter this space, they're entering it to make crypto available to their customers. As an investment paypal is saying we think this technology could be beneficial in payments more generally. And so I think that's a good thing. I think frankly paypal's move might also create more momentum toward creating a regulatory framework or federal regulatory framework. That is, yeah, I mean, it's so, so you you probably following this more closely than I am, but like from what I saw about what happened with that bill in Washington, it seemed like the two sides are pretty far apart, right? Like you had Maxine waters, basically calling it extremist, right? And, and just saying that it was, it was that there were all these different and then, you know, so, so I guess the, I guess the question I'm asking is, um, is this in the interim basically what paypal is doing is this kind of like a, a way around that, you know, like, go, you know, because they're, they're basically saying, ok, ok, because we have a prudential, you know, regulation because we're registered as a trust in New York that sort of protects users. I mean, is this sort of something that companies can do in the interim? Like I, I don't know, go through New York register as a trust and that provides some sort of security in the absence of any federal regulation regulation. Well, II, I think paypal launched its effort under the laws as it exists today. Uh Just the way, you know, circle is licensed in New York. Um And frankly, I think paypal's design uh is a, is a good one in the sense that I think they are trying to uh design uh the safest uh structure if you will from a consumer protection standpoint with the arrangement with XOs, with the limited purpose, trust and so forth. Um That's the framework we have today. Uh We don't have a federal, you know, stable coin framework, I would say on the, on the issue of the House um committee, I'm not sure the two sides are that far apart. I mean, I guess maybe I just wanna be optimistic here, but I think the real issue or the key issue is this question of state chartering versus federal chartering. And I would think that there are a variety of ways that we could come up with a role for the states, uh, while still ensuring minimal federal standards. Whether that's because you specify in federal law, what those state standards, what the minimum standards need to be, or whether you condition it on the size of a stable coin, you know, if it's above a certain size, it has to meet these additional federal standards or you could even condition it on access to a federal master account. I think there are ways I would hope there are ways to bridge that gap. Now, the head of strategy was on the show yesterday. He said they are talking to large tech firms, large financial firms about the potential of other stable coins. We just talked about that Bernstein Rep uh Bern Beger Report. Um Tell us, do you think that this is going to pressure the US to look at the CBD C again with these stable coins? Uh coming out with these news headlines coming out? Well, I've always thought that the US should do more in terms of research and development for a CBD C. I'm not convinced yet that uh we need to create one. Frankly, you could argue that we already have a wholesale CBD C if you will, in the sense that banks have reserve accounts at the fed, which are essentially digital. But I think it is important for the US to do more research and development and to be more involved in the international standards that are beginning to be thought about and be created in this space because, you know, other nations are moving in this way. Um I've always thought though that there should be both uh that government research as well as the private market creation of, of stable coins. You know, we still don't know just how important this technology will be. You know, how much can it contribute to efficiency and speed and cost savings and, you know, the value of program ability and so forth. But I think all that, you know, is a worthwhile endeavor, both from a private market standpoint and from the government standpoint. Yeah. You know, another topic that I brought up yesterday is this, we, we have Elon Musk renaming his company X and it looks like he wants it to be an everything app, including a way to transmit money. I guess. I, I guess that's probably where that's going. Uh, he's pretty much hinted that that's, if not said more explicitly. Uh, does that change the way, especially now that, that this has happened so soon? Does that change what Congress or how Congress will approach regulation? Uh or should they, should they eventually pass something? Does it change the way, uh the, the entire regulators in general will approach it because they were very, very strongly against Facebook getting into the stable coin business, how will they approach X getting either into the stable coin business or into the the rails business of any kind? Sure, very good. Uh question. Look, we've always had a notion of that. There should be a separation that there should be a separation between banking and commerce, right? So when you get into the stable coin issue, uh the question is, how does that then apply? Now, paypal was a payment is a payments company. It's always been a payments company. This is what it does. It's not a crypto company. Facebook was a social media platform that had no uh activity in financial services and that was one of the things that concerned regulators. Uh Elon Musk obviously has been interested in financial services uh for decades. I mean, he was thinking about the internet of value before we even called it that. But Twitter, you know, is not a financial services company today or X is not a financial services company today. So this issue of if you have a payments company, what other activities should it be allowed to engage in is an important one. Now, the stable coin legislation that the committee uh passed does have some provision for uh addressing this. Uh So I think this will be, you know, this will be an ongoing issue of where do you draw that line? Now, of course, some payments companies would say, well, we're really more technology com we're more like a technology company than a bank. Um And so, you know, we have to think about that has, has the notion of what we're trying to achieve with this separation between commerce and banking changed, meaning that it used to be about. We didn't want credit allocation decisions being tainted by an association between a bank and a commercial firm. Now, you know, the Facebook uh issue with Libra really posed the question. Well, we don't want uh a platform that has huge amounts of data on us to be able to use that, you know, in an improper way or at least that was one of the issues that people were talking about. So, what I'm saying is, I think we still have to think about what is the proper range of activities that a payments company can engage in beyond payments. Uh How do we define that? Um I think that will be important uh in the discussion. So I guess just to kind of round this off here, Tim, I mean, do you really think that this is going to propel Congress to come to sort some sort of compromise? Um I mean, what, what I guess, what do you see is, is the next steps here because we, I'm not saying, yeah, I'm not saying paypal's move in particular will, but I think it's, you know, it's going to be a contributing factor just as Emily, as you pointed to what's happening in other jurisdictions. Look you know, the US often moves slowly. Uh Hopefully we get to the right answer. Uh, eventually I'm still optimistic. We will, it may take time. Um, but, you know, I think the market moves forward and I think sooner or later, uh, we're, we're going to have to, uh, create a federal framework for this. All right. Thank you, Chair Masset for joining the show. Wonderful, as always to have you on. Ok. That was Timothy Massad, former CF DC chairman and current director of the Digital asset Policy project at the Harvard Kennedy School.