Coin Center Blasts Lummis-Gillibrand Stablecoin Bill as Unconstitutional, Anti-Innovation

The Coin Center, a pro-cryptocurrency organization, has heavily criticized the recently introduced Lummis-Gillibrand Payment Stablecoin Act, calling it unconstitutional and anti-innovation. The bill, which aims to regulate stablecoins, includes provisions requiring one-to-one reserves, effectively banning algorithmic stablecoins. Coin Center argues that such a ban would violate the First Amendment rights of developers. Despite concerns raised over algorithmic stablecoins following the Terra-Luna crash, the group proposes an alternative approach of mandatory SEC registration for issuers.

Stablecoin Regulation: Coin Center Decries Lummis-Gillibrand Bill as Unconstitutional and Anti-Innovation

Washington, D.C. - Pro-cryptocurrency organization Coin Center has vehemently denounced a newly proposed legislative bill, the Lummis-Gillibrand Payment Stablecoin Act, deeming it unconstitutional and detrimental to innovation. In a strongly worded public statement released on Friday, the US-based advocacy group criticized the bipartisan bill, alleging that it would stifle the growth and adoption of stablecoins, a rapidly expanding sector within the digital asset ecosystem.

The Lummis-Gillibrand Payment Stablecoin Act, introduced by Senators Kirsten Gillibrand and Cynthia Lummis, seeks to establish a comprehensive regulatory framework for stablecoins, aiming to address concerns over investor protection and market stability. However, Coin Center argues that the proposed legislation goes too far, imposing excessive restrictions that threaten to undermine the very nature of cryptocurrencies.

"This bill would effectively outlaw algorithmic stablecoins, which are an important and innovative part of the cryptocurrency ecosystem," said Coin Center Research Director Peter Van Valkenburgh. "Algorithmic stablecoins are not inherently risky, and in fact, they offer several advantages over traditional fiat-backed stablecoins."

Algorithmic stablecoins rely on computer algorithms to adjust their supply in response to changes in demand, maintaining their stability without the need for one-to-one reserves. This allows for greater flexibility, efficiency, and accessibility compared to fiat-backed stablecoins, which require issuers to hold reserves equivalent to the value of all outstanding tokens.

According to Coin Center, the outright ban on algorithmic stablecoins proposed in the Lummis-Gillibrand bill is unconstitutional, infringing upon the First Amendment rights of developers to create and publish code. "Software is speech, and the government cannot prohibit or censor it," Van Valkenburgh emphasized.

Moreover, Coin Center contends that the proposed legislation is anti-innovation, sending a chilling effect on the development and adoption of new and innovative stablecoin designs. "This bill would stifle competition and prevent the emergence of potential technological advancements that could benefit consumers," said Neeraj Agrawal, Coin Center's Director of Research and Director of Digital Currency.

Coin Center also expressed concerns over the bill's requirement for stablecoin issuers to maintain one-to-one reserves, echoing industry experts who believe it could stifle innovation and limit growth. "One-to-one reserves are not a necessary condition for stability," Agrawal noted. "There are other mechanisms that can be employed to mitigate risks associated with stablecoins."

In this regard, Coin Center suggested that a more measured approach would be to require issuers of algorithmic stablecoins to register with the Securities and Exchange Commission (SEC) rather than implementing a total ban. "This would provide regulators with oversight while allowing for innovation to continue," Agrawal said.

Alternatively, Coin Center pointed to the "Clarity for Payment Stablecoins Act" introduced in 2021 as a more reasonable approach. This bill proposed a two-year moratorium on the launch of new algorithmic stablecoins, providing ample time for policymakers to study and understand these instruments before imposing restrictive regulations.

In a separate development, the global stablecoins market has experienced significant growth throughout 2024. According to data from DeFiLlama, the total stablecoins market cap has surged by 21.95% from $139.342 billion on January 1, 2024, to its current value of $158.957 billion. Tether USD (USDT) continues to dominate the market, accounting for approximately 69.10% of the total market cap, while USD Coin (USDC) holds a 20.90% share. Other notable stablecoins include Dai (DAI), First Digital USD (FUSD), and Athena USDe (USDe).

Despite the recent growth in stablecoins, the industry remains in its infancy, with the potential for transformative innovation and widespread adoption. However, the threat of overly restrictive regulation looms large, and it is essential for policymakers to approach this emerging sector with a balanced and proportionate approach that encourages responsible growth while safeguarding consumers.