Senators Cynthia Lummis and Kirsten Gillibrand have introduced the Payment Stablecoin Act, a new legislation aimed at regulating stablecoins to ensure they are backed by assets and to prevent illicit use. Ripple, a leading cryptocurrency company, has plans to launch its own stablecoin, which will be backed by US dollar reserves, pending the progress of the new legislation.
The Lummis-Gillibrand Payment Stablecoin Act, unveiled on April 17, is the result of months of drafting and addresses concerns surrounding stablecoin issuance and usage. The bill focuses on strengthening the stability of the US dollar, promoting responsible innovation, protecting consumers, and combating illicit financial activities.
The proposed legislation specifically targets “unbacked, algorithmic stablecoins” and requires issuers to hold one-to-one reserves, a response to the instability witnessed after the depegging incident of TerraUSD in 2022. The bill establishes strict regulatory regimes at both the state and federal levels, providing clear guidelines for stablecoin firms and aiming to prevent illicit uses of stablecoins.
According to the bill, state non-depository trust companies would be authorized to issue up to $10 billion in payment stablecoins. Additionally, institutions holding limited-purpose state charters would have the flexibility to issue stablecoins without predetermined limits. The legislation also highlights the importance of proper custody practices for issuers, particularly in light of recent developments involving FTX.
Senators Gillibrand and Lummis stress the need for a regulatory framework to preserve the dominance of the US dollar and ensure the integrity of the financial system. They express confidence in gaining support for the bill from both the Senate and the House, highlighting their collaboration with relevant federal and state agencies during its drafting.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act comes at a time when lawmakers and industry leaders are increasingly concerned about the regulation of stablecoin issuers in the United States. While there have been promising bills, such as the Clarity for Payment Stablecoins Act, progress in this area has been slow, with little movement in recent months.
Senator Sherrod Brown, chair of the Senate Banking Committee, has indicated his intention to prioritize stablecoin regulation in the current legislative session, provided that relevant concerns are adequately addressed. Although he does not specifically mention the efforts of Gillibrand and Lummis, Brown’s statement highlights the growing recognition of stablecoin regulation as a crucial aspect of financial oversight.
The Payment Stablecoin Act is of significant importance to companies like Ripple, which has announced its plans to launch its own stablecoin. Ripple’s stablecoin will maintain a 1:1 peg with the US dollar and will be fully backed by dollar deposits and other cash equivalents. The progress of the Payment Stablecoin Act could facilitate the launch of Ripple’s stablecoin, providing regulatory clarity and certainty for the company and its investors.
While the cryptocurrency industry awaits regulatory clarity through initiatives like the Payment Stablecoin Act, Ripple continues to face legal challenges, particularly its ongoing legal battle with the US Securities and Exchange Commission (SEC). The SEC alleges that Ripple violated securities laws through the sale of its native digital asset, XRP. Ripple’s upcoming opposition brief, scheduled for April 22, will play a crucial role in shaping the outcome of this prolonged legal dispute.
In a recent meeting, House Financial Services Committee Chairman Patrick McHenry and the committee’s senior Democrat, Rep. Maxine Waters, met with Senate Majority Leader Chuck Schumer to discuss advancing stablecoin legislation. The meeting aimed to explore potential avenues for moving the legislation forward, including linking it to the reauthorization of Federal Aviation Administration (FAA) funding.
McHenry, who is retiring from Congress this year, remains optimistic about the possibility of passing the stablecoin bill before the end of the current session. He emphasizes the importance of establishing regulatory guardrails for stablecoin issuers to ensure stability in the cryptocurrency market.