New Bill in the USA Points Towards Stable(coin) Future

June 2024

Whilst the SEC’s general hostility towards cryptocurrency has been seen over the past few years in its unrelenting campaign to brand all crypto as a security and aggressive stance towards many businesses in the industry (some justifiably, others not), others in the US are looking more towards the benefits of engaging with crypto and are exploring how best to engage with it in a safe and secure manner. 

The most recent headway towards the US embracing crypto came this week, with the introduction of the ‘Lummis-Gillibrand Payment Stablecoin Act of 2024’. Pioneered by senators Cynthia Lummis and Kirsten Gillibrand, the bill seeks to provide a regulatory standard and framework for stablecoins ahead of their adoption by the US market.

The act itself defines stablecoins and proposes general, stringent standards for those seeking to issue stablecoins, stipulating amongst other things that: 

‘A payment stablecoin may only be issued directly or indirectly in the United States by - 

  • (A) a non-depository trust company that has registered with the Board consistent with 22 section 6 and for which the nominal value of all outstanding payment stablecoins does not exceed $10,000,000,000, as adjusted under sub25 section (b); or 
  • (B) by a depository institution that has been authorized as a national payment stablecoin issuer consistent with section 7.’

This would limit those who could provide these kinds of services to registered and authorized financial institutions and ensure they fell under regulatory supervision whilst prohibiting others from offering payment stablecoins. The document also specifically prohibits the use of algorithmic payment stablecoins - options which lack asset reserves to back their value and instead rely on algorithms to stabilize the price in conjunction with other tokens and which can experience issues with significant changes in market factors.  

The bill also deals with issues that have destabilized the crypto space before, including rehypothecation which was a component of FTX’s fall, and safeguards and oversight provisions that cut down on the chances of any bad practice, intentional or otherwise, from compromising the space. Other areas the proposal covers include regulatory requirements around basic capital, liquidity and risk management standards, permissions for mergers and acquisitions, those responsible for enforcement and many other standards for both banking and non-banking institutions.

With their value tied to a more stable currency such as the dollar, stablecoins represent a way for people to engage with many of the opportunities which cryptocurrencies provide without the volatility risk that is synonymous with the wider crypto scene, where news, speculation and FOMO can all send the price of a coin wildly off-kilter. Providing a regulated environment for their use brings the adoption and growth of crypto to a wider audience and encourages the development of the space which benefits legitimate users.    

Should the progress of this bill, or others progressing the case for the legitimate use of cryptocurrencies in the US, gain traction and eventually lead to a better situation for crypto in America, identity verification services such as those that Blockpass provides become even more valuable, providing fast, efficient, effective and privacy-centric means to prove KYC, AML and other standards are being met. Blockpass’ solutions are ever-evolving and can be tailored to meet any regulatory requirements so businesses, both in the crypto-space and outside, can ensure the best levels of compliance with minimal fuss and cost. 

Hopefully, as cooler heads work to progress the advancement of stablecoin adoption in the US, the populace will be able to enjoy the potential it opens up and develop novel solutions that can grow the industry further and benefit people in a safe, secure, regulated manner. 

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- By Matthew Warner