US Senate Bill Aims to Supercharge Bank Participation in Stablecoin Market

A recent bill proposed to the U.S. Senate, the Payment Stablecoin Act, aims to encourage U.S. banks to participate in the stablecoin market by issuing USD-pegged stablecoins. If approved, this bill could provide banks with a competitive advantage over non-bank stablecoin issuers by limiting their issuance to a maximum of $10 billion. Notably, this has the potential to impact Tether, the largest stablecoin issuer with a $110 billion market cap, which is not a permitted payment stablecoin under the proposed bill.

U.S. Senate Bill Aims to Spur Bank Involvement in Stablecoin Market

Global ratings agency S&P Global Ratings has analyzed the potential implications of a newly introduced bill in the United States Senate that focuses on stablecoins. The proposed Payment Stablecoin Act, introduced on April 17 by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY), has garnered attention for its potential to reshape the stablecoin landscape.

S&P Global Ratings, in an April 23 research note, opined that the bill's provisions could provide incentives for U.S. banks to enter the stablecoin market. The bill proposes a $10 billion issuance limit for non-bank stablecoin issuers, potentially limiting the dominance of large non-U.S. entities like Tether, which currently hold a significant share of the market.

Stablecoins as a Financial Market Pillar

The ratings agency emphasized the growing significance of stablecoins in the financial markets, citing their potential to enhance efficiency and security in asset tokenization and digital bond issuance. S&P Global Ratings cited the recent launch of BlackRock's BUIDL fund as an example of the growing recognition of stablecoins' potential in these areas.

Implications for Non-Bank Stablecoin Issuers

The Payment Stablecoin Act outlines specific requirements for stablecoin issuers, including maintaining one-to-one cash or cash-equivalent reserves and prohibiting unbacked algorithmic stablecoins. These provisions would potentially have a significant impact on non-bank stablecoin issuers like Tether, which currently operate outside of the proposed regulatory framework.

Impact on Tether's Dominance

S&P Global Ratings noted that Tether, with its $110 billion market capitalization, is currently the largest U.S. dollar-pegged stablecoin issuer on the market. However, the proposed issuance limit of $10 billion for non-bank stablecoin firms could pose challenges for Tether's continued dominance. The analysts suggest that U.S. entities may be restricted from holding or transacting in Tether due to the proposed bill, leading to a potential decline in demand for the stablecoin and a boost for U.S.-issued stablecoins.

Controversy and Concerns

While the proposed bill has drawn support from some stakeholders, it has also faced criticism from certain industry players. Crypto advocacy organization Coin Center has expressed concerns about the bill's proposal to ban algorithmic stablecoins, arguing that it could have negative implications for innovation and consumer protection. The organization has also questioned the bill's constitutionality under the First Amendment.

Senator Gillibrand's Perspective

Upon introducing the bill, Senator Gillibrand emphasized the need for a regulatory framework for stablecoins to maintain the dominance of the U.S. dollar, promote responsible innovation, protect consumers, and combat illicit finance.

Conclusion

The Payment Stablecoin Act, if approved, could have a significant impact on the U.S. stablecoin market by limiting non-bank stablecoin issuers' issuance capacity and potentially reducing Tether's dominance. The bill's provisions aim to enhance the safety and stability of the stablecoin ecosystem while also addressing concerns related to money laundering and illicit finance. However, the debate surrounding the bill highlights the need for careful consideration of its implications for innovation and consumer rights.