New Stablecoin Bill Introduced

Stablecoins issuers and users have been preparing themselves for a stablecoin bill to make an appearance in the U.S., and now that it’s finally here, we uncover the details of what this bill means.

Time for a quick memory refresh – what is a stablecoin?
A stablecoin is a type of cryptocurrency backed by a reserve asset, such as the U.S. dollar or gold, and aims to provide – like its name indicates – stability in price.

Examples include but are not limited to:
1.    Tether (USDT)
2.    USDC Coin (USDC)

United States Senators Kirsten Gillibrand and Cynthia Lummis have introduced legislation, establishing a regulatory framework for payment stablecoins.

In an announcement made on April 17th, the two U.S. senators have confirmed that the Lummis-Gillibrand Payment Stablecoin Act has been officially introduced in the market.

• It is a bill that’s been drafted for quite some time now, and was expected to make public in 2024.

   

• The bill requires stablecoin issuers to maintain full reserves and operate with dollar-backed tokens exclusively, a measure intended to ensure that stablecoins can be reliably converted to dollars for consumer protection.

   

• In response to concerns about digital currency transparency and stability, the bill emphasises public disclosure of reserve assets.

   

According to Lummis and Gillibrand, the legislation prohibited “unbacked, algorithmic stablecoins” required to one-to-one reserves for issuers, has created federal regulatory regimes for firms. Not only this, but it has also prevented the illicit use of stablecoins.

“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers and cracking down on money laundering and illicit finance,” stated Senator Gillibrand.
“To draft the strongest bill possible, our offices worked closely with the relevant federal and state agencies and I’m confident this legislation can earn the necessary support in the Senate and the House.”
 

Source: X

As per the context of the 179-page-bill, state non-depository trust companies - such as the Federal Reserve or authorised deposit banks - will be allowed to issue up to $10 billion in payment stablecoins, with authorised institutions able to issue stablecoins “up to any amount” under a limited-purpose state charter.

Additionally, the legislation seeks to maintain the existing framework of state and federal charters while setting forth regulations regarding custody arrangements for non-depository trust companies.

The highlight of the bill is that it includes a large mandatory reserve fund. Among the essentials, a stablecoin issuer should just swap their digital assets into USD on demand to ensure both liquidity and stability.

A Step Forward Towards Digital Assets Regulation

If there’s one thing the U.S. loves doing, it’s definitely trying to regulate digital assets.

Prime example of it is Gary Gansler with his un-wavering conviction on whether cryptocurrencies are securities or not.

Recommended Read: Ethereum Under SEC’s Lens

The introduction of such a bill is a step closer by U.S. lawmakers to implement crystallisation in the digital currency market.

Both senators Lummis and Gillibrand have been key members of the crypto regulatory bill that has been drafted with the main aim of allowing digital assets to be formalised and regulated.

However, it wasn’t the U.S. first attempt at enacting similar bills.

As a matter of fact, Mr. Patrick McHenry, alongside Ms. Maxine Waters have previously tried to walk towards the same path. The previous bill did indeed move through the committee, but became deadlocked after a change of leadership.