A new bill proposed to the United States Senate may push traditional banks into the stablecoin market if it passes. According to a recent research note from global ratings service S&P Global Ratings, banks could significantly benefit from new rules regulating stablecoin issuance in the U.S.
On April 17, two U.S. Senators, Kirsten Gillibrand and Cynthia Lummiss, announced the Lummis-Gillibrand Payment Stablecoin Act. The bill sets out to sanitize the stablecoin market with a few provisions. These include prohibiting “unbacked, algorithmic stablecoins,” and requiring stablecoin issuers to maintain 1:1 cash or cash equivalent reserves for the assets. The bill also introduces an issuance limit of $10 billion for all stablecoins issued by institutions without a banking license.
This bill could potentially affect the crypto sector in many ways, including offering crypto enthusiasts several more options. The entire crypto industry may see more adoption, with proponents buying into established options or becoming early adopters of new assets by paying attention to crypto presales, such as those available in this list provided by valuewalk.com from Kane Pepi.
Another major effect S&P Global Ratings highlighted in the research note is that the bill will give banks a “competitive advantage” to issue stablecoins if non-bank issuers cannot issue more than $10 billion worth of crypto. Banks may easily dominate the stablecoin market if the government eliminates a significant portion of their competition.
Interestingly, the research note states that stablecoins regulated by the New York Department of Financial Services (NYDFS), including Paxos USD, Gemini USD, and PayPal USD, may all be unaffected since they are already below the $10 billion maximum, in line with rules enforced by the NYDFS.
Perhaps the most significant change to the crypto sector, if the bill passes, is a considerable reduction in Tether’s dominance. According to current CoinMarketCap data, Tether’s USDT is the world’s third-largest cryptocurrency by market cap and the largest stablecoin. While there are several other dollar stablecoins in the market, USDT has been the largest for some time. Unfortunately, the new bill now hangs USDT’s fate in the balance.
“Tether, the largest stablecoin by outstanding volume, is issued by a non-U.S. entity and therefore not a permitted payment stablecoin under the proposed bill. This means that U.S. entities couldn’t hold or transact in Tether, which may reduce demand while boosting U.S.-issued stablecoins.”
Although S&P Global Ratings notes that USDT transaction volume is “predominantly outside the U.S.” and more commonly used for remittances and other functions needed by retail users, the stablecoin’s activity is likely to plunge.
In an official post, Senator Gillibrand wrote that a regulatory framework for stablecoins is necessary for various reasons, including maintaining the dollar’s dominance. Gillibrand also believes the regulation will protect consumers, crack down on illicit applications of finance like money laundering, and promote responsible innovation.
This is not the first attempt to regulate the cryptocurrency sector, with stablecoins as the particular focus. Last year, the House Financial Services Committee proposed a regulatory framework to govern payment stablecoins. According to committee chairman Patrick McHenry, the bill seeks to protect customers and provide requirements for stablecoin issuance. Like the Payment Stablecoin Act from Gillibrand and Lummiss, the bill also sought to create guidelines for issuers, especially ensuring that issuers maintain adequate reserves.
However, the bill met some resistance after its introduction. For instance, Rep. Maxine Waters, D-Calif., noted that the legislation may allow large companies to issue their own stablecoins at will. At the time, McHenry’s push for a stablecoin bill was said to be connected to PayPal’s PYUSD stablecoin.
An increase in stablecoin issuance may extend the use of cryptocurrencies across several sectors. Already, cryptocurrencies are popular in finance as investment vehicles and generally used as a medium of exchange. The possibility of more dollar-backed stablecoins could influence crypto usage elsewhere, with people using digital assets for everything from playing crypto poker at an online casino to using crypto as a primary channel for cross-border remittances.