In a major legislative move on April 17, U.S. Senators Kirsten Gillibrand and Cynthia Lummis unveiled the Lummis-Gillibrand Payment Stablecoin Act, a comprehensive bill designed to regulate the realm of payment stablecoins. This pivotal legislation aims to fortify the U.S. dollar’s global dominance while ensuring a safer and more robust financial ecosystem.
The bill notably targets “unbacked, algorithmic stablecoins,” a response to the infamous 2022 depegging of TerraUSD (UST) from the U.S. dollar. It mandates that stablecoin issuers maintain one-to-one reserves, a measure intended to enhance financial stability and consumer trust. Furthermore, the legislation introduces rigorous state and federal regulatory frameworks for these entities, designed to thwart the misuse of stablecoins in illegal activities such as money laundering.
Senator Gillibrand emphasized the critical importance of establishing a regulatory framework for stablecoins to protect consumers and sustain the U.S. dollar’s dominance. She highlighted the collaborative efforts with various federal and state agencies to draft what she believes is a robust and supportable bill. “This legislation is pivotal in promoting responsible innovation and safeguarding the financial system,” Gillibrand stated.
In addition to specifying custody rules for non-depository trust companies, the bill permits state non-depository trust entities to issue up to $10 billion in payment stablecoins, with potentially unlimited issuance under certain conditions. This move aligns with the current state and federal charter systems and responds directly to concerns following the FTX crisis regarding the custody practices of issuers.
The Senate’s initiative comes amid widespread calls for clear regulatory guidelines for stablecoins, following previous legislative efforts and recent turmoil in the cryptocurrency markets. As the House of Representatives progresses with similar legislation, this new bill is poised to make significant strides in the legislative agenda, aiming to enhance the integrity and stability of digital financial instruments.