A new bill could cause an upsurge of investment in stablecoins from banks, says S&P global

In a recent Senate bill, S&P Global Ratings cites the Lummis-Gillibrand Payment Stablecoin Act as a possible catalyst for large financial institutions to enter the stablecoin industry.

U.S. banks may be “encouraged” to enter the stablecoin market by a newly submitted bill to the Senate, according to S&P Global Ratings, an international ratings agency.

According to a research note published by S&P on April 23, the Payment Stablecoin Act, which was introduced to the Senate on April 17, could complicate matters for big non-US entities like Tether that issue stablecoins by encouraging banks to participate in issuing stablecoins pegged to the US dollar.

According to the ratings agency, stablecoins have the makings of a “key pillar of financial markets.” They cited BlackRock’s newly established BUIDL fund as proof of the “efficiencies and better settlement security” of stablecoins in tokenizing digital assets and bonds.

Notably, the Lummis-Gillibrand Payment Stablecoin Act sought to prohibit “unbacked” algorithmic stablecoins, impose a $10 billion issuance cap on non-bank stablecoin companies, and mandate that stablecoin issuers maintain reserves of one-to-one cash or cash equivalents.

“The new laws may offer banks a competitive advantage by limiting institutions without a banking licence to a maximum issue of $10 billion,” it stated, taking into consideration the approval of the bill and the subsequent implementation of relevant banking regulations.

Tether, the biggest U.S. dollar-pegged stablecoin issuer on the market at the moment with a market worth of $110 billion, could be in trouble, according to the ratings agency, which also mentioned the introduction of a $10 billion issuance to non-bank businesses.

“The proposed bill does not permit payment stablecoins like Tether, the largest stablecoin by outstanding volume, because its issuer is a non-U.S. corporation,” S&P Global stated.

“Demand for Tether may fall and stable coins issued by the United States could rise as a result of this, since U.S. entities couldn’t hold or trade in Tether.”

Transactions in emerging markets, retail activities, and remittances drove much of Tether’s transaction activity outside of the United States, according to S&P.

Last week, while introducing the bill, Democratic Senator Kirsten Gillibrand stated that establishing a regulatory framework for stablecoins was “devastatingly important for preserving the dominance of the U.S. dollar, fostering responsible innovation, safeguarding consumers, and combating money laundering and illicit finance.”

However, not everyone was in favor of the bill’s proposed changes. Concerned that banning algorithmic stablecoins would be “poor policy” and hence violate the First Amendment, crypto advocacy group Coin Centre voiced its opposition to the idea.

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