US Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) have introduced a groundbreaking new bill called the Lummis-Gillibrand Payment Stablecoin Act, which aims to establish comprehensive regulation for stablecoins in the United States. The purpose of this legislation is to strengthen the dominance of the US dollar in the digital asset space. While the bill has received praise for its efforts to create clear rules for stablecoins, it has also faced criticism, particularly regarding its ban on algorithmic stablecoins.
The Lummis-Gillibrand Payment Stablecoin Act defines payment stablecoins as digital assets that are pegged to the US dollar and used for payments or settlements. The bill includes a number of important provisions, such as operational requirements for issuers to operate through subsidiaries, the exclusive use of dollar-backed tokens, and the requirement for full backing by reserve assets. Additionally, stablecoin issuers would be obligated to disclose their reserve assets to the public and utilize non-depository trusts as custodians.
One of the most controversial aspects of the bill is its ban on algorithmic stablecoins, which rely on algorithms rather than full collateralization to maintain their value. Critics, including Coin Center, argue that this ban hampers innovation and raises constitutional concerns. Coin Center suggests a more nuanced approach, such as a temporary halt on the creation of new algorithmic stablecoins, to allow for ongoing innovation and examination by regulatory bodies.
The senators behind this bill argue that this regulatory framework is critical for preserving the dominance of the US dollar and protecting consumers. The bill also introduces a limit of $10 billion for non-depository trust institutions to issue payment stablecoins. Beyond this threshold, issuers would need to qualify as depository institutions authorized at a national level.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act signifies a determined effort by Senators Lummis and Gillibrand to shape the digital assets market. This echoes previous attempts to establish legal parameters for decentralized finance and define the jurisdiction of federal agencies over cryptocurrency, though these efforts were ultimately unsuccessful.
Coin Center, a prominent cryptocurrency advocacy group, has expressed strong opposition to the bill, particularly highlighting its ban on algorithmic stablecoins. They argue that this ban not only stifles innovation but also infringes on developers’ First Amendment rights to publish code. Coin Center suggests a more flexible approach, similar to the “Clarity for Payment Stablecoins Act,” which proposed a two-year moratorium on new algorithmic stablecoins instead of an outright ban. This approach, they argue, allows for continued innovation and examination by regulatory bodies.
The debate over the regulation of algorithmic stablecoins raises constitutional concerns, with critics arguing that the ban could be seen as a restriction on free speech. This aspect underscores the challenges involved in regulating emerging technologies while also safeguarding fundamental liberties. Coin Center contends that any regulation must be carefully tailored to serve a compelling government interest, a criterion they believe the current bill fails to meet.
The Lummis-Gillibrand Payment Stablecoin Act is a significant step toward regulating stablecoins in the United States. However, its ban on algorithmic stablecoins has sparked controversy, with critics claiming that it inhibits innovation and raises constitutional concerns. This debate highlights the difficulties of regulating emerging technologies while striking a balance between innovation and consumer protection.
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