Senators Lummis and Gillibrand introduced the Payment Stablecoin Act to regulate stablecoins, ensuring they’re backed by assets and preventing illicit use.
Ripple plans to launch its stablecoin, backed by US dollar reserves, pending the progress of the new legislation.
United States Senators Kirsten Gillibrand and Cynthia Lummis unveiled the Lummis-Gillibrand Payment Stablecoin Act on April 17. The bill, drafted over months, aims to address concerns surrounding stablecoin issuance and usage, focusing on bolstering the stability of the US dollar, fostering responsible innovation, safeguarding consumers, and combating illicit financial activities.
The proposed legislation targets “unbacked, algorithmic stablecoins” and mandates one-to-one reserves for issuers, echoing the need for stability witnessed after TerraUSD’s depegging incident in 2022. It introduces stringent regulatory regimes at both state and federal levels, aiming to provide clear guidelines for stablecoin firms while curtailing illicit uses of stablecoins.
Under 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 emphasizes the importance of proper custody practices for issuers, particularly in light of recent FTX developments.
Response and Future Outlook
Gillibrand and Lummis have emphasized the necessity of passing a regulatory framework to maintain the dominance of the US dollar and ensure the integrity of the financial system. They expressed confidence in garnering support for the bill across the Senate and the House, highlighting collaboration with relevant federal and state agencies in its drafting.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act comes amidst growing concerns from lawmakers and industry leaders regarding regulating stablecoin issuers in the United States. While similar bills, such as the Clarity for Payment Stablecoins Act, have shown promise, progress in this arena has been relatively slow, with little movement observed in recent months.
Senator Sherrod Brown, chair of the Senate Banking Committee, has indicated his intent to prioritize stablecoin regulation in the current legislative session, provided pertinent concerns are adequately addressed. While not specifically mentioning the efforts of Gillibrand and Lummis, Brown’s statement underscores the growing recognition of stablecoin regulation as a crucial aspect of financial oversight.
Implications for Ripple and the Cryptocurrency Market
The introduction of the Payment Stablecoin Act is crucial for companies like Ripple, which recently announced plans to launch its stablecoin. Ripple’s stablecoin is designed to maintain a 1:1 peg with the U.S. dollar and be backed 100% 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 grapples with 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 pivotal role in shaping the outcome of this protracted legal dispute.
Meeting with Senate Majority Leader
It is worth noting 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 meeting aimed to explore potential avenues for moving the legislation forward, including tying 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 has emphasized the importance of providing regulatory guardrails for stablecoin issuers to ensure stability in the cryptocurrency market.
