What are the advantages and disadvantages of the proposed stablecoins legislation in the United States?
The Payment Stablecoin Act, championed by Republican Cynthia Lummis and Democrat Kirsten Gillibrand in Congress, holds potential benefits for American consumers, but its constitutionality has become a point of contention. Despite their bipartisan push for regulatory clarity on digital assets, the act’s provisions have sparked debate.
Lummis and Gillibrand’s latest legislative effort focuses on stablecoins, arguing for a defined framework to protect consumers and maintain the dollar’s dominance in digital payments. A key proposal in their act aims to ban algorithmic stablecoins, which are not backed by real assets, in the US. This move is a response to the instability that followed Terraform Labs’ UST, which lost its peg to the dollar in 2022, causing a significant crisis.
However, the Coin Center, a crypto advocacy group, has criticized the ban, claiming it is both “bad policy” and potentially unconstitutional. The think tank’s executive director, Jerry Brito, raises concerns about the constitutionality of the act’s provisions. Other aspects of the Payment Stablecoin Act are also ambiguous, leaving the status of digital assets like MakerDAO’s DAI uncertain.
The proposed legislation could also affect Circle, which issues the second-largest stablecoin, USDC, with a $33 billion market cap. As a Massachusetts-based company, Circle would fall under the act’s purview, potentially requiring it to become a regulated depository institution if the $10 billion stablecoin issuance cap is enforced. This could pose operational challenges for the company.
While Lummis and Gillibrand argue that stablecoins denominated in other jurisdictions should be subject to US regulations, the applicability of these rules to Tether, with a $110 billion market cap and offshore origins, remains unclear. Tether, with its dominant position in the industry, poses a unique challenge to the proposed legislation.
Despite these concerns, the Payment Stablecoin Act has potential to benefit American consumers by streamlining cross-border transactions and reducing fees. The act’s provisions, if enacted, would require stablecoins to be backed one-to-one with reserve dollars and introduce FDIC deposit insurance, akin to the protections offered by traditional banks. This could encourage the adoption of stablecoin payments and potentially mitigate the risk of de-dollarization.
The passage of the act, however, is uncertain, as Akin, a global law firm, has warned. The future of the Payment Stablecoin Act rests on its ability to navigate the complex legal landscape and gain bipartisan support in Congress. If successful, it could lead to the creation of US-domiciled stablecoins by banks, further reshaping the digital asset landscape.
