A recent report from S&P suggests that a bipartisan bill focusing on stablecoins could give banks an advantage over other institutions and promote competition in the digital asset custody business.
The proposed Lummis-Gillibrand Payment Stablecoin Act, which was introduced on April 17, aims to bring clarity to the stablecoin market, which is currently dominated by Tether (USDT) and is valued at $157 billion.
Stablecoins are cryptocurrencies that are pegged to fiat currencies, providing stability in a volatile financial market. They are typically tied to sovereign currencies like the US dollar, for example, Circle’s USD Coin (USDC), which serve as gateways for liquidity.
If approved, the bill would allow US banks to issue fiat-pegged tokens without any limitations, while non-banking service providers would be required to maintain a market cap below $10 billion.
According to Andrew O’Neil, Managing Director and Co-Chair of S&P Global’s Digital Assets Research Labs, this regulatory framework would give banks an edge over other market participants and encourage the adoption of blockchain technology in the financial sector through asset tokenization and digital bond issuance. O’Neil also highlighted the benefits of on-chain payment rails, citing BlackRock’s Ethereum-based fund as an example.
However, it is important to note that the Lummis-Gillibrand bill would not affect existing US-based products like PayPal USD. Furthermore, offshore entities like Tether would not be authorized under this framework, potentially shaking its presence in the market. O’Neil pointed out that Tether’s activities and volume are primarily outside of the United States.
Additionally, decentralized stablecoins like Maker’s DAI and Frax Finance’s FRAX would not be subject to the proposed regulations. O’Neil explained that policymakers tend to prefer centralized systems like USDC because they resemble traditional financial operations.
Finally, the S&P report predicts an increase in the number of providers in the digital asset custody industry, especially with the recent update to SEC rules that no longer require custodians to report crypto-assets on their balance sheets. Crypto.news has reached out to O’Neil and S&P for further comments on the bill and its potential impacts.
In response to the bill, Coin Center, a non-profit research and advocacy center for cryptocurrencies, has expressed concerns about the risks it poses to innovation and free speech.