Key Takeaways:
- The Lummis-Gillibrand Payment Stablecoin Act aims to encourage U.S. banks to issue dollar-pegged stablecoins, potentially shifting the market away from dominant non-U.S. issuers like Tether.
- The bill proposes significant regulatory measures, including a $10 billion cap on stablecoin issuance by non-bank entities and a ban on unbacked algorithmic stablecoins, favoring traditional banks with stringent reserve requirements.
- Despite the support for fostering U.S. dollar supremacy and financial innovation, the bill faces criticism for its potential impact on algorithmic stablecoins, with opponents citing concerns over constitutional rights and policy effectiveness.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act to the U.S. Senate might lead major banks to enter the stablecoin market, according to S&P Global Ratings.
This bill, presented on April 17, aims to propel banks into issuing U.S. dollar-pegged stablecoins and may disrupt large non-U.S. entities like Tether that currently dominate the stablecoin issuance.
Congressional stablecoin legislation is drawing cheers from the crypto industry — and criticism from the traditional finance world https://t.co/zT5pwi6Xhy
— Bloomberg Crypto (@crypto) April 24, 2024
S&P Global Ratings in a recent research note highlighted that the Payment Stablecoin Act could serve as a significant incentive for banks, potentially marking stablecoins as a crucial component of future financial markets.
This comes in the wake of BlackRock’s BUIDL fund, which underscores the efficiencies and security enhancements stablecoins bring to the tokenization of assets and digital bonds.
The bill suggests imposing a $10 billion cap on stablecoin issuance by non-bank entities and prohibits the use of unbacked algorithmic stablecoins, requiring issuers to maintain one-to-one cash or equivalent reserves.
Banks are in and Tether could fade if latest stablecoin bill passes: S&P Global https://t.co/jp4WtjMCn0
— The Block (@TheBlock__) April 24, 2024
This regulation could provide traditional banks with a competitive edge by limiting the issuance capacity of non-licensed institutions to $10 billion.
Furthermore, the act would place Tether, the largest issuer of a U.S. Dollar-pegged stablecoin with a market cap of $110 billion, in a precarious position as it is issued by a non-U.S. entity and wouldn’t meet the new criteria for permitted stablecoins under the proposed legislation.
This could diminish the demand for Tether in the U.S., benefitting domestically issued stablecoins.
The report also noted that Tether’s usage is predominantly in international markets, especially in emerging markets through retail activities and remittances.
Senator Kirsten Gillibrand emphasized the importance of this regulatory framework for stablecoins, stating it was crucial for maintaining U.S. dollar supremacy, fostering responsible innovation, and safeguarding consumers, while also addressing money laundering and illegal financial activities.
I'm proud to join @SenLummis to introduce the Payment Stablecoin Act.
— Sen. Kirsten Gillibrand (@gillibrandny) April 17, 2024
Passing a regulatory framework for stablecoins is critical to protecting consumers, promoting responsible innovation, and cracking down on money laundering and illicit finance. https://t.co/UP9pk0uQkt pic.twitter.com/lIqA3rwQXN
However, not all feedback on the bill has been positive. Coin Center, a crypto advocacy group, criticized the bill for potentially banning algorithmic stablecoins, arguing that such a move could be unconstitutional under the First Amendment and labeling it as “bad policy.”
This legislative push highlights the ongoing dialogue and contrasting viewpoints within the financial and regulatory landscapes regarding the future role and regulation of stablecoins in the U.S. economy.
About The Author
Victor Fawole, a seasoned Web3 content creator and social media influencer, excels in bringing the pulse of the crypto world to our readers.
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