United States Senators Kirsten Gillibrand and Cynthia Lummis have collaborated on a groundbreaking piece of legislation that aims to establish a comprehensive regulatory framework for payment stablecoins. The senators recently announced the introduction of the Lummis-Gillibrand Payment Stablecoin Act, a bill that has been in development for several months and is expected to be officially unveiled in 2024. The legislation is designed to address key issues in the stablecoin space, such as the depegging of stablecoins from their underlying assets and illicit uses of these digital assets.
One of the primary objectives of the bill is to prohibit the issuance of “unbacked, algorithmic stablecoins,” a direct reference to the TerraUSD (UST) stablecoin’s depegging from the U.S. dollar in 2022. To ensure stability and investor protection, the legislation also mandates that stablecoin issuers maintain one-to-one reserves. In addition, the bill proposes the creation of both state and federal regulatory frameworks for stablecoin firms, aiming to promote responsible innovation while cracking down on money laundering and illicit finance.
Senator Gillibrand emphasized the importance of passing this regulatory framework, stating that it is crucial to maintain the dominance of the U.S. dollar, protect consumers, and foster responsible innovation. She expressed confidence that the legislation, which was developed in close collaboration with relevant federal and state agencies, will garner the necessary support in both the Senate and the House.
According to the details outlined in the 179-page bill, state non-depository trust companies would be authorized to issue payment stablecoins up to $10 billion. Authorized institutions, on the other hand, would be able to issue stablecoins without any specific limit under a limited-purpose state charter. The legislation also aims to uphold the current system of state and federal charters, while establishing rules on custody for non-depository trust companies.
The bill also addresses the issue of proper custody practices for stablecoin issuers, highlighting the importance of this aspect, particularly in the wake of the FTX incident. The lawmakers behind the bill believe that stringent custody practices will help protect the interests of investors and maintain the integrity of the stablecoin ecosystem.
This is not the first time that Senators Lummis and Gillibrand have collaborated on crypto-related legislation. In October 2023, Senator Lummis called for action against stablecoin issuer Tether, alleging that it facilitated funds used by Hamas following the terrorist group’s attack on Israel. The senators have previously worked together on introducing legislation that aims to establish a comprehensive regulatory framework for digital assets, clarifying the roles of regulatory bodies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act comes at a time of increasing concerns among lawmakers and industry leaders regarding the need for robust regulations in the stablecoin space. The House of Representatives has already taken steps in this direction by advancing the Clarity for Payment Stablecoins Act out of committee in July 2023. However, progress on this legislation has been slow since then, with little movement seen in recent months.
Senator Sherrod Brown, the chair of the Senate Banking Committee, has reportedly expressed his intent to prioritize a stablecoin bill in the legislative session, provided his concerns are adequately addressed. While he did not specifically mention the efforts of Senators Lummis and Gillibrand, his statement indicates a growing recognition of the importance of regulatory measures in the stablecoin sector.
In conclusion, the proposed legislation by Senators Lummis and Gillibrand signals a significant step towards establishing a comprehensive regulatory framework for payment stablecoins in the United States. The bill aims to address concerns related to stability, investor protection, and illicit activities, while also fostering responsible innovation in the digital asset space. As the legislative process unfolds, it remains to be seen how this proposed framework will shape the future of stablecoins in the country.