Elements of the Payment Stablecoin Act have the potential to benefit American consumers, but critics claim other parts are “unconstitutional.”
Republican Cynthia Lummis and Democrat Kirsten Gillibrand have become a bipartisan, pro-crypto player in Congress, leading efforts to provide regulatory clarity for digital assets in the United States.
Their recent legislative efforts have focused on stablecoins, and both argue that a well-defined framework is needed to protect consumers and ensure the dollar maintains its dominant position as digital payments continue to gain momentum. I did.
One of the most important proposals of the Lummis-Gillibrand Payment Stablecoin Act is to completely ban algorithmic stablecoins in the United States, preventing coins that are not backed by real assets from being released. This is a clear nod to the disaster surrounding Terraform Labs’ UST, which went into a death spiral after losing ground against the dollar in 2022.
This particular proposal has raised concerns among some advocacy groups, namely Coin Center. The non-profit has made it clear that it does not like UST, but argues that a blanket ban on algorithmic stablecoins is “not only bad policy, it is unconstitutional.” Jerry Brito, the think tank’s executive director, argued:
“(Unlike Terra) there could be fully decentralized ‘algorithmic stablecoins’ without any commitments made by the issuer or promoter. In such cases, a ban on ‘algorithmic stablecoins’ would essentially be a ban on publishing code that violates free speech.”
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Other areas of the Payment Stablecoin Act also raise more questions than answers. First of all, the status of some digital assets, such as MakerDAO’s decentralized product DAI, is unclear.
There may also be troubling issues for Circle, which issues USDC, the world’s second-largest stablecoin with a market capitalization of $33 billion at the time of this writing. The company is headquartered in Massachusetts, which means it will definitely be subject to the Payment Stablecoin Act. Circle would not be able to operate in its current form without becoming a regulated depository institution, according to the proposal that the trust company could only issue up to $10 billion in stablecoins.
While both politicians rightly claim that USD-denominated stablecoins based in other jurisdictions are “currently writing the rules for the dollar,” it is also unclear how those rules might apply to Tether. USDT dominates the industry with a market capitalization of $110 billion, but is based overseas. A study by S&P Global found that about 80% of the $145 billion stablecoin market pegged to the U.S. dollar was issued outside the United States.
a promising step
Elements of the Payment Stablecoin Act have the potential to benefit U.S. consumers.
First of all, any legislation that opens the door to mass adoption of stablecoin payments would be welcomed. As Lummis and Gillibrand point out, cross-border transactions using legacy systems can take up to 10 days to process and are often subject to harsh fees. In contrast, stablecoins provide near-instant payments at a much lower cost.
This could be a game-changing change for foreign workers sending money back to their families in their home countries. According to data from the World Bank, the sector will be worth about $669 billion in 2023, but the typical cost of remittances is 6.2%. That’s $41 billion that could help local economies. It’s all consumed by transaction fees.
If signed into law, these proposals would introduce safeguards to ensure that all stablecoins are adequately backed on a one-to-one basis by dollar reserves and introduce FDIC deposit insurance in case the issuer goes bankrupt. The banking sector currently automatically protects customers with an amount of $250,000.
Lummis and Gillibrand also argue that the move could ease the prospects for de-dollarization as major economies around the world work to build their own financial systems. “It’s about protecting American values and making the dollar the primary currency of the $4.5 trillion global economy.” S&P Global principal credit analysts Mohamed Damak and Andrew O’Neill went on to suggest that approval of the bill could lead to banks issuing their own stablecoins.
The big question now is whether and how the Payments Stablecoin Act will pass. Global law firm Akin warned:
“With the focus on the upcoming election and the slowdown in legislative activity, opportunities to get legislation passed through Congress are limited.”
Akin