Senate Banking Committee Chair Sherrod Brown.
The Senate Banking Committee wants information from stablecoin issuers about how their cryptocurrencies work.
Committee Chair Sherrod Brown sent letters to Circle and Tether as well as crypto exchanges like Coinbase.
Circle's CEO said it will respond to the request to "ensure consumers are appropriately protected."
The Senate committee overseeing banks and coinage is asking stablecoin issuers for information about how they conduct business, after the Biden administration asked Congress to regulate the rapidly growing corner of the cryptocurrency space.
Sen. Sherrod Brown, chair of the Senate Banking Committee, said in a Tuesday statement he wants stablecoin issuers and crypto exchanges to explain how they are protecting consumers and investors in what has become a $143 billion market.
Stablecoins are cryptocurrencies tied to government-issued money like the US dollar, and they make up a portion of the wider $2.6 trillion cryptocurrency market.
"I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms," Brown wrote in a November 23 letter to payment services company Circle, which is behind the stablecoin USDC.
The committee on Tuesday also sent information-request letters to stablecoin issuers Tether, Circle, Paxos, TrustToken, and to Centre, a stablecoin standards organization created by Circle and crypto exchange Coinbase that oversees USDC.
Letters were also sent to Coinbase as well as rival crypto exchanges Gemini and Binance.US. Brown listed questions for the companies and wants responses by December 3. In his letter to Tether, he wrote:
1. "Please describe the basic purchase, exchange, or minting process[es] by which customers can acquire Tether for U.S. dollars. In your answer, explain any relevant limitations or qualifications to engaging in and completing that process."
Brown also addressed the Binance USD coin, which was established by Binance.US and Paxos.
7. "Please summarize any internal reviews or studies your company has conducted about how specific levels of redemptions would affect BUSD, including its convertibility into U.S. dollars, or would affect the financial position of your company."
Complex terms and conditions can make it difficult for investors and consumers to fully understand how stablecoins function and what their potential risks are, said Brown in his letters.
"Even though stablecoins are typically 'minted' in exchange for U.S. dollars, or other conventional currency, the purchase of stablecoins through a trading platform may not provide customers with the same rights and entitlements as a direct purchase from an issuer," he wrote.
In a report released at the start of November, the Biden administration said stablecoins could become widely adopted, noting that a regulatory framework would build confidence in using the digital assets for payment purposes.
But rules are "urgently needed," and Congress should impose certain laws such as only allowing banks to issue stablecoins, it added.
"Thank you @SenSherrodBrown for the letter inquiring about the important topic of how stablecoin issuers protect consumers. I look forward to responding and working with you to ensure consumers are appropriately protected," wrote Jeremy Allaire, Circle's co-founder and CEO, in a Twitter post Tuesday.
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