Proposed Stablecoin Act May Propel U.S. Banks into Stablecoin Market, S&P Global Predicts
Summary:
The proposed Payment Stablecoin Act in the U.S. Senate could push U.S. banks to issue dollar-pegged stablecoins, according to S&P Global Ratings. The ratings agency sees stablecoins as key to financial markets and states that the bill might provide banks with a competitive advantage by limiting non-bank institutions to a $10 billion issuance cap. It could however be detrimental for non-U.S. stablecoin issuers like Tether. Concerns have been raised about the prohibition of unbacked algorithmic stablecoins and the potential impact on free speech rights.
According to global ratings agency S&P Global Ratings, a newly proposed legislation focusing on stablecoins could potentially stimulate US banks to immerse themselves in the stablecoin market. In a research note released on April 23, the agency suggested that the Payment Stablecoin Act, introduced to the Senate on April 17, may prompt banks to issue stablecoins that are pegged to the U.S dollar. This could, however, signify trouble for major non-U.S entities like Tether that also issue stablecoins. S&P portrayed stablecoins as a crucial component of financial markets, citing the BUIDL fund recently launched by BlackRock as an indicator of the secure settlement and efficiency offered by stablecoins in the tokenization of assets and digital bonds.
Notably, the proposed Lummis-Gillibrand Payment Stablecoin Act entails introducing a cap of $10 billion on issuances by non-bank stablecoin entities, banning stablecoins without backing (those based on algorithms), and necessitating issuers of stablecoins have equal cash or cash equivalent reserves.
"Under the presumption that this proposed legislation is enacted, and that subsequent banking regulations are introduced, these new rules might provide a competitive edge to banks by limiting issuances by those without a banking license to a maximum of $10 billion," stated the agency. S&P also highlighted that the proposed $10 billion issue limit could impact Tether, which currently dominates the market as the largest issuer of stablecoins pegged to the U.S. Dollar, with a market capitalization of $110 billion.
S&P Global further added, "As Tether, which currently has the highest outstanding volume among stablecoins, is issued by a non-U.S. entity, it would not qualify as an approved payment stablecoin under the proposed legislation, making it unauthorized for U.S entities to hold or transact, which might reduce demand while amplifying U.S-issued stablecoins." They pointed out that the majority of Tether's transactional activity takes place predominantly outside the U.S, predominantly driven by remittances, retail activity, and transactions in emerging markets.
In response to the proposed bill last week, Democratic Senator Kirsten Gillibrand expressed that the implementation of a regulatory framework for stablecoins was "vital to uphold the dominance of the U.S. Dollar, stimulate responsible innovation, protect consumers and clamp down on money laundering and other illicit financial activities." However, not everyone was welcoming of the suggested proposals under the act. Crypto advocacy entity Coin Center voiced their anxiety with the bill, labeling it as "detrimental policy" to ban stablecoins based on algorithms and tagged it as a violation of the First Amendment assurance.
Published At
4/25/2024 5:30:30 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.