Banks May Step Into the Stablecoin Market
A new bill focusing on stablecoins, introduced to the U.S. Senate, could motivate American banks to engage more actively in the stablecoin sector, according to S&P Global Ratings.
In a research note dated April 23, S&P discussed the Payment Stablecoin Act, which was brought before the Senate on April 17.
The firm believes the act could pave the way for banks to issue stablecoins pegged to the U.S. dollar and potentially create challenges for major non-U.S. stablecoin issuers such as Tether.
S&P referred to stablecoins as potentially becoming a "key pillar of financial markets," citing the example of BlackRock's recently launched BUIDL fund, which demonstrates the potential efficiencies and enhanced security in settlements provided by stablecoins for tokenizing assets and digital bonds.
The Lummis-Gillibrand Payment Stablecoin Act includes provisions such as a $10 billion issuance cap for non-bank stablecoin firms, a ban on "unbacked" algorithmic stablecoins, and a requirement for issuers to maintain one-to-one reserves in cash or cash equivalents.
“Assuming the bill is approved, and that relevant banking regulation follows, the new rules may offer banks a competitive advantage by limiting institutions without a banking license to a maximum issuance of $10 billion,” S&P stated.
The agency also highlighted that the $10 billion issuance limit for non-bank firms could pose a significant challenge for Tether, which currently has a market cap of $110 billion and is the largest issuer of U.S. Dollar-pegged stablecoins.
According to S&P Global, "Tether, the largest stablecoin by outstanding volume, is issued by a non-U.S. entity and therefore not a permitted payment stablecoin under the proposed bill.
This means that U.S. entities couldn’t hold or transact in Tether, which may reduce demand while boosting U.S.-issued stablecoins."
S&P observed that a significant portion of Tether's transactions are conducted outside the U.S., mainly driven by activities in emerging markets, retail sectors, and remittances.
When introducing the bill, Democratic Senator Kirsten Gillibrand emphasized the importance of a regulatory framework for stablecoins, stating it was “absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers, and cracking down on money laundering and illicit finance.”
However, the bill has faced criticism. Coin Center, a crypto advocacy group, voiced its concerns, labeling the ban on algorithmic stablecoins as “bad policy” and deeming it an unconstitutional act under the First Amendment protections.
Sources:
https://cointelegraph.com/news/banks-flood-stablecoin-market-new-payment-act-passes-senate
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