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Home CRYPTO

Banks could flood into stablecoin market if new payment act passes Senate

Gary Ponce by Gary Ponce
April 25, 2024
in CRYPTO
Reading Time: 3 mins read
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  • The Lummis-Gillibrand Payment Stablecoin Act could encourage U.S. banks to issue stablecoins by imposing a $10 billion issuance limit on non-bank stablecoin firms.
  • The proposed bill aims to ban unbacked algorithmic stablecoins and require stablecoin issuers to hold one-to-one cash or cash-equivalent reserves.
  • The $10 billion issuance cap on non-bank firms could spell trouble for Tether, currently the largest U.S. Dollar-pegged stablecoin issuer with a market cap of $110 billion.

The introduction of the Lummis-Gillibrand Payment Stablecoin Act to the U.S. Senate could encourage banks to issue stablecoins and gain a competitive edge in the emerging market, according to a note from S&P Global Ratings.

Bill proposes limits on non-bank stablecoin issuers

The proposed bill would place a $10 billion cap on stablecoin issuance for non-bank entities. It would also ban unbacked algorithmic stablecoins and require 1:1 reserves for stablecoin issuers.

These new rules could limit non-bank entities while giving banks a competitive advantage in stablecoin issuance. The $10 billion cap in particular may pose challenges for major non-US stablecoin issuers like Tether, which has a market cap over $100 billion.

Tether issuance could face hurdles under new rules

As Tether is issued by a non-US entity, it would not qualify as a permitted stablecoin under the bill. This may reduce demand for Tether while boosting US-issued stablecoins.

Much of Tether’s activity occurs outside the US, driven by emerging markets, retail activity, and remittances. New US rules may shift stablecoin dominance towards US-based issuers.

Stablecoin regulation aims to maintain dollar dominance

Senator Kirsten Gillibrand said passing a stablecoin framework is critical for maintaining the dominance of the US dollar and promoting responsible innovation.

However, some industry groups argue the bill’s limits on algorithmic stablecoins raise free speech concerns. The path forward remains uncertain as lawmakers balance innovation with regulation.

Conclusion

The proposed stablecoin bill signals greater regulatory oversight of cryptocurrencies. If passed, it could spur major US banks to enter the market while restricting non-US players. This shift could have broad impacts on stablecoin adoption and design worldwide.

Disclaimer: BlockNews provides independent reporting on crypto, blockchain, and digital finance. All content is for informational purposes only and does not constitute financial advice. Readers should do their own research before making investment decisions. Some articles may use AI tools to assist in drafting, but every piece is reviewed and edited by our editorial team of experienced crypto writers and analysts before publication.
Tags: S&P Global RatingSenator Kristen GillibrandStablecointether
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Gary Ponce

Gary Ponce

Gary has been active in the crypto space since 2019, developing hands-on experience in trading, airdrop hunting, and identifying emerging narratives in low-cap tokens. For over four years, he has contributed research and editorial content with Aiur Labs and BlockNews, focusing on market analysis and community insights. His work reflects both transparency and independent reporting, with an emphasis on simplifying complex ideas for readers. Gary is a long-term believer in Bitcoin, Sui, Hype, Litecoin, XRP, and select meme tokens, combining personal trading knowledge with professional editorial standards.

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