A fresh bill introduced in the United States Senate is set to revolutionize the stablecoin market by potentially allowing U.S. banks to issue stablecoins pegged to the U.S. dollar.
The Payment Stablecoin Act, unveiled on April 17, has caught the attention of financial institutions and market observers alike. S&P Global Ratings, in a recent research report on April 23, indicated that the bill could encourage banks to take a more active role in the stablecoin industry. This move could pose a challenge to major non-U.S. stablecoin issuers like Tether, which currently boasts a market cap of $110 billion.
The proposed legislation suggests imposing a $10 billion cap on stablecoin issuance by non-bank firms and prohibits the creation of “unbacked” algorithmic stablecoins. Additionally, it requires stablecoin issuers to hold cash reserves equivalent to the value of their stablecoins.
If the bill is passed and banking regulations are adjusted accordingly, banks could gain a competitive advantage. Non-banking institutions would be limited to issuing up to $10 billion in stablecoins, which could impact the activities of large entities such as Tether.
Tether, a major stablecoin issuer recognized for its high trading volume, is issued by a non-U.S. entity and would not comply with the requirements of the Payment Stablecoin Act. This non-compliance would prevent U.S. entities from using Tether, potentially reducing its demand and benefiting stablecoins issued within the U.S.
S&P highlighted that Tether’s transactions primarily occur outside the U.S. and are driven by retail, remittances, and transactions in emerging markets.
Democratic Senator Kirsten Gillibrand emphasized the importance of establishing a regulatory framework for stablecoins to preserve the dominance of the U.S. dollar, encourage responsible innovation, protect consumers, and combat money laundering and illicit financial activities.
However, not everyone is in favor of the proposed changes outlined in the bill. Coin Center, a crypto advocacy group, expressed concerns about the legislation, arguing that banning algorithmic stablecoins could be considered “bad policy” and a violation of the First Amendment.
For more information, BRICS is considering the use of stablecoins in settlements, according to a Russian official.