Democrats Warn of Stablecoin Bailouts As STABLE Act Passes Key Vote

The years-long fight to approve stablecoin legislation in the U.S. crossed a monumental milestone as the STABLE Act passed the House Financial Services Committee Wednesday by a vote of 32-17.

But in the 13-hour marathon markup hearing, Democrats raised a key issue around the prospect of bailing out stablecoin issuers, should they ever run into trouble again.

In 2023, USDC lost its dollar peg after Silicon Valley Bank looked like it was set to fail. Circle, the USDC stablecoin issuer, had $3.3 billion at SVB at that time. The FDIC stepped in and backstopped all depositors and USDC regained its peg after falling below 90 cents. But what if something like that were to happen again?

As Coinage readers know, many stablecoins have failed in the past. Terra infamously cratered in 2022 after suffering a death spiral. But to Republicans' point, the STABLE Act lays out that all stablecoin issuers would need to meet requirements — like having short-term liquidity and backing stablecoins with those reserves dollar-for-dollar in custody.

Democrats pushed back. As USDC's de-peg showed, even ensuring dollars in a bank can lead to runs to redeem stablecoin deposits — and given that the velocity is much faster than traditional dollars in a bank run, it can lead to faster panics. Representatives like Stephen Lynch fought for hours to make the point that it could set the U.S. to bailout stablecoin issuers if problems arise again. He sought to add an amendment that would explicitly prevent the government from using taxpayer money on stablecoin bailouts.

It's an interesting question. Because Bitcoin was born out of the idea of hating bank bailouts. Satoshi Nakamoto mockingly inscribed an article that covered the bailouts in the first ever Bitcoin block to be mined on the blockchain. The genesis block famously reads, "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

Democrats raised other problems with the bill in the hearing as well. For one, many, including Maxine Waters took issue with the idea of Trump family members having inside access to key rule making that may come from the process and sought to add amendments that would bar the President or members of his family from launching stablecoins. President Trump's World Liberty Financial recently announced it would be launching its USD1 stablecoin in partnership with Binance.

In the end, the bill advanced by a strong vote of 32-17. A similar bill on the Senate side, the GENIUS Act, looks to establish the same rules around stablecoins. Talks are expected to be carried out to align language and bring the bills to final votes. If approved by both chambers, the stablecoin legislation will head to President Trump's desk.

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