Senators Lummis and Gillibrand have introduced the Payment Stablecoin Act, a new piece of legislation aimed at regulating stablecoins to ensure they are backed by assets and to prevent their illicit use. Ripple, a prominent cryptocurrency company, plans to launch its own stablecoin, which will be backed by US dollar reserves, pending the progress of this new law.
On April 17, United States Senators Kirsten Gillibrand and Cynthia Lummis unveiled the Lummis-Gillibrand Payment Stablecoin Act. This bill, which has been drafted over several months, seeks to address concerns related to the issuance and usage of stablecoins. Its main objectives are to strengthen the stability of the US dollar, promote responsible innovation, protect consumers, and combat illicit financial activities.
The proposed legislation specifically targets “unbacked, algorithmic stablecoins” and requires issuers to hold one-to-one reserves, reflecting the need for stability following the depegging incident of TerraUSD in 2022. The bill establishes strict regulatory frameworks at both the state and federal levels, providing clear guidelines for stablecoin companies 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 with limited-purpose state charters would have the flexibility to issue stablecoins without predetermined limits. The legislation also emphasizes the importance of proper custody practices for issuers, particularly in light of recent developments involving FTX.
Senators Gillibrand and Lummis have emphasized the need to pass a regulatory framework in order to maintain the dominance of the US dollar and ensure the integrity of the financial system. They are confident in gaining support for the bill from both the Senate and the House, and have highlighted their collaboration with relevant federal and state agencies in the drafting process.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act comes at a time when lawmakers and industry leaders are increasingly concerned about regulating stablecoin issuers in the United States. While similar bills, such as the Clarity for Payment Stablecoins Act, have shown promise, progress in this area has been relatively slow, with little movement observed in recent months.
Senator Sherrod Brown, chair of the Senate Banking Committee, has expressed his intention to prioritize stablecoin regulation in the current legislative session, provided that relevant concerns are adequately addressed. Although he did not specifically mention the efforts of Senators Gillibrand and Lummis, Brown’s statement underscores the growing recognition of stablecoin regulation as an important aspect of financial oversight.
The introduction of the Payment Stablecoin Act is crucial for companies like Ripple, which has announced its plans to launch its own stablecoin. Ripple’s stablecoin is designed to maintain a 1:1 peg with the US dollar and 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 by 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 is also facing 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 lengthy legal dispute.
It is worth noting that House Financial Services Committee Chairman Patrick McHenry and the committee’s senior Democrat, Rep. Maxine Waters, recently met with Senate Majority Leader Chuck Schumer to discuss advancing stablecoin legislation. The purpose of the meeting was to explore potential strategies for moving the legislation forward, including tying it to the reauthorization of Federal Aviation Administration (FAA) funding.
McHenry, who is set to retire 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.
