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Stablecoin qs

The narrative

Last week, Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) presented a new joint legislative proposal. This time, their focus is on regulating stablecoins, the $160 billion sector of the crypto market that’s gained significant attention – being the part where crypto regulation seems most probable. However, passing such legislation remains uncertain.

Why it matters

The recently proposed Lummis-Gillibrand bill is a comprehensive plan that outlines the regulation of stablecoins issued by American corporations. It includes provisions for maintaining their value (no more algos) and ensures consumer protection.

Breaking it down

The Lummis-Gillibrand bill, introduced recently, lays out a regulatory structure for overseeing stablecoin issuers at both the state and federal levels. It describes a specific process for handling potential collapses of these digital currencies through the Federal Deposit Insurance Corporation (FDIC). Moreover, the bill prohibits the use and issuance of algorithmic stablecoins altogether.

Some industry players raised concerns over the recently proposed Lummis-Gillibrand bill, expressing apprehension about the absence of regulations concerning crypto-collateralized tokens such as DAI and the prohibition of algorithmic stablecoins with no exceptions.

The legislation outlines extensive regulations for US-issued stablecoins as represented in the bill. However, it offers fewer restrictions concerning stablecoins issued by foreign companies, such as Tether (USDT). According to the press release accompanying the bill, nefarious actors will no longer be able to utilize unregulated foreign stablecoins.

At a glance, it seems there isn’t a clear solution preventing them from going ahead with it.

During an interview on CoinDesk TV, my coworker Jenn Sanasie inquired if Senator Lummis could share any particular method for restricting foreign issuers from accessing American customers.

“If Tether prefers to operate outside the US regulatory framework and work with different regulators instead, that’s a business decision for them. However, if they aim to obtain the ‘seal of approval’ from the US regulatory authorities for their product, then they need to comply with US regulations.”

Tether is a well-known company that releases the largest stablecoin in the world, called USDT. The total value of USDT tokens currently circulating is over $110 billion, as reported by CoinGecko. Additionally, USDT has the highest liquidity among all stablecoins, with around $38 billion worth of tokens traded within the last 24 hours, according to CoinGecko’s data. Another significant stablecoin is Circle’s USDC, with approximately $34 billion in circulating tokens and $6 billion in daily trading volume. (I attempted to contact Tether for comment but have yet to receive a response.)

If Circle, in its current form, were to surpass the $10 billion mark, it would be mandatory for this stablecoin issuer to obtain either state or federal charter as a depository institution to legally continue its operations.

Lummis suggested that the company should examine the bill and consider adjusting their compliance procedures if necessary.

“They probably have to get a federal charter, to be honest,” she said.

I’m unsure how this bill plans to regulate stablecoins such as DAI, which are issued by decentralized entities but don’t operate using algorithms for stability.

Time will tell where and how this bill will proceed.

An ongoing initiative, spearheaded by the House Financial Services Committee, involves discussions between Chair Patrick McHenry (R-N.C.), Ranking Member Maxine Waters (D-Calif.), and Senate Majority Leader Chuck Schumer (D-N.Y.) regarding attaching a bill on stablecoins to another legislative piece. The specifics of the House bill remain uncertain, as neither McHenry nor Waters’ representatives have provided clarification upon request.

Chair of the Senate Banking Committee, Sherrod Brown (D-Ohio), expressed his potential support for a bill that tackles consumer protection issues and includes adequate safeguards. His office declined to provide additional comments on this matter.

Certainly, certainly, without a doubt, the clock is ticking. Lawmakers are deeply engrossed in their campaigns now. By summer, it will be highly unlikely for elected officials to pause their campaign activities for something as complex as stablecoins. Any advancements made could stall (if we don’t experience another unexpected vacancy for the House Speakership, although the push to remove Mike Johnson appears to be losing steam).

A more probable outcome is that a passage could occur during the post-election period, before the new Congress takes office. In this case, any proposed bill would likely be connected to a necessary piece of legislation for it to pass. This could be the National Defense Authorization Act or some other crucial bill such as a budget act.

The future development of stablecoin legislation is uncertain, but with McHenry stepping down from his position and Brown and Schumer seemingly supportive, there’s a decent possibility that a bill could be passed into law by the end of the year.

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