New Stablecoin Bill Draws Mixed Reactions

U.S. Senators Cynthia Lummis and Kristen Gillibrand have introduced new legislation for stablecoin issuers.

By: Pedro Solimano Loading...

image depicting dollar stablecoin regulation

After months of drafting and deliberations, U.S. Senators Cynthia Lummis (R-WY) and Kristen Gillibrand (D-NY) introduced a new draft bill for stablecoins on April 17, aiming to create a regulatory sandbox for issuers and users.

“I'm proud to join Senator Lummis to introduce the Payment Stablecoin Act,” wrote Gillibrand. “Passing a regulatory framework for stablecoins is critical to protecting consumers, promoting responsible innovation, and cracking down on money laundering and illicit finance.”

The new bill requires issuers to maintain a 1:1 reserve ratio, prohibits algorithmic stablecoins – a nod to the Terra fiasco that saw $60 billion wiped from the market in 2022 – and creates a federal and state regulatory body that will perpetuate the dual banking system.

Stablecoins are cryptocurrencies pegged to a fiat currency, usually the U.S. Dollar. These tokens have become a behemoth of the digital asset industry and are touted by many as the killer use case for blockchains.

Tether’s USDT is the leader by a wide margin with more than 70% of the $158 billion stablecoin market capitalization, and has set its eyes on the broader tokenization market. USDT and Circle’s USDC account for more the 90% of the market.

Tether Market Cap chart
USDT Market Capitalization

The new bill comes with a series of provisions, especially considering some of the debacles the industry recently endured.

“Proper custody practices for issuers are essential, especially in light of FTX,” said a document describing the bill, with state non-depository trust companies receiving an allowance to issue up to $10 billion in payment stablecoins.

Overall Positive

“Regulations around stablecoins allow for safer and more secure utility, ultimately leading to greater adoption,” said Phillip Alexeev, Chief Growth Officer atCrossFi, a crypto payment solutions provider.

Alexeev also told The Defiant that incumbent stablecoins should benefit because they are “more nimble” from an infrastructure perspective and can adjust their operations to meet the new requirements.

He went one step further, explaining that this new bill flies in the face of the “anti-crypto” narrative in Congress since it proves regulators are keen to establish clear regulations.

But not everyone agrees with Alexeev.

A Net Negative For The Industry

Terrence Yang, Managing Director at Bitcoin-only brokerage firm Swan Bitcoin, told The Defiant the new bill is an overall net negative for the industry.

“We already have MANY laws on our books to protect US Main Street and other investors,” he explained, and a better approach would be to eliminate almost all laws and replace them with a big expansion of the anti-fraud provisions — rules that already exist — to every financial asset.

Yang addressed the concerns surrounding incumbent stablecoins, especially Circle’s USDC, which has been busy cozying up to regulators.

“By adding new rules and regulations, the proposed legislation favors incumbents like USDC over smaller stablecoins that may be more decentralized and innovative,” he explained, adding ominously, “USDC is an eager, highly compliant precursor to CBDCs, which will bring about social credit scores & a 1984 nightmare scenario to the American people, destroying freedom and dignity.”

The U.S. Needs Better Crypto Regulations

Crypto is a polarizing issue for politicians in the United States.

From the aforementioned Cynthia Lummis to Representatives Tom Emmer (R-MIN) and Patrick McHenry (R-NC), crypto has its defenders in Washington, D.C. But on the other side of the aisle, heavyweights have declared war on the digital asset industry, with Senator Elizabeth Warren leading the charge.

But 2024 is an election year, so the stakes are high.

Crypto advocates are now examining the current political landscape, with their eyes set on several key states, bidding to help crypto innovation stay in the United States.