SEC Chair Gary Gensler put forward a wide-ranging view of potential cryptocurrency regulation at a Senate hearing this week, saying that a type of digital asset called stablecoins may be considered a security.
The comments come as the Treasury Department works with other federal agencies to draft a report by next month on potential regulations for stablecoins, a form of cryptocurrency that pegs its value to a commodity or currency, like the U.S. dollar.
New rules could draw support from a top industry player, Facebook's (FB) David Marcus, who has spearheaded the tech giant's soon-to-launch digital wallet called Novi. Marcus also sits on the board of the Diem Association, a coalition of corporate and non-profit members that aim to bring out a stablecoin called Diem that will be exchanged over the new digital wallet from Facebook.
In a new interview, taped prior to Gensler's comments on Tuesday, Marcus told Yahoo Finance stablecoins "probably" will require additional regulation, which should focus on consumer protection as well as the prevention of illegal payments like money laundering.
"Do we need more regulation?" says Marcus, head of F2, also known as Facebook Financial. "The answer is probably 'yes.'"
"The first thing is really consumer protection," he adds. "Do consumers understand what they're buying? And what guarantees do they have to get their money out in an adverse event? And so that pertains to if you're talking about stable coins, specifically, what are the reserves made of?
"Are they're fully backed? reserves? Or are they not fully backed? And if they are fully backed? What are they backed with?" he adds.
During Gensler's testimony before the Senate Banking Committee on Tuesday, Democratic Senator Elizabeth Warren (D-MA) asked about the possibility of crypto investors attempting to withdraw money during a market crash. Gensler said the SEC could not do much to help investors since crypto exchanges like Coinbase (COIN) had not registered with the SEC.
Treasury Secretary Janet Yellen last month urged speedy adoption of stablecoin rules in remarks to regulators.
Marcus said investor risks found in stablecoins depend on the commodities that back a given cryptocurrency.
"In my view, very high quality stable coins are only backed by cash and very short term treasuries," he says. "That's it."
"Then you could add a capital buffer on top of that, to basically cover unexpected operational losses, or what have you to add another layer of protection," he says.
Facebook aims to release Novi along with Diem by the end of the year, Marcus told Axios earlier this month. Diem, which emerged from Facebook's effort to develop a cryptocurrency that began under the name Libra in 2017, will be pegged to the U.S. dollar, Marcus said.
Speaking to Yahoo Finance, Marcus said concerns over illicit payments with stablecoins offer an opportunity for regulators to improve the clarity of rules governing such transactions, even though stablecoins are currently used for everyday payments in rare circumstances.
"We're very motivated to solving payments use case but stable coins are mainly used right now for exchanges when people are buying and selling other crypto assets," he says.
"There are provisions around anti-money laundering, combating the financing of terrorism, sanctions enforcement — and I think the rules are pretty clear," he says. "This actually offers an opportunity to get better at it than the current system is, which I think it will be."