Controversial regulations for stablecoin seek to strengthen dominance of the U.S. Dollar
US Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) have put forth a revolutionary proposal known as the Lummis-Gillibrand Payment Stablecoin Act. This act aims to regulate stablecoins in the United States and ensure the continued dominance of the US dollar. However, it has faced criticism, particularly regarding its ban on algorithmic stablecoins.
The bill provides a comprehensive definition of payment stablecoins as digital assets pegged to the US dollar that are used for payments or settlements. It includes several key provisions such as operational requirements for issuers to operate through subsidiaries, exclusively deal in dollar-backed tokens, and have full backing by reserve assets. Moreover, stablecoin issuers would need to disclose their reserve assets to the public and employ non-depository trusts as custodians.
One of the most contentious aspects of the bill is the ban on algorithmic stablecoins, which rely on algorithms rather than full collateralization to maintain their value. Critics, including Coin Center, argue that this ban hinders innovation and raises constitutional concerns. Coin Center suggests a more nuanced approach, such as implementing a moratorium on new algorithmic stablecoins, which would allow for ongoing innovation and examination by regulatory bodies.
The senators argue that this regulatory framework is essential for maintaining the dominance of the US dollar and ensuring consumer protection. The bill also introduces a limit of $10 billion for non-depository trust institutions to issue payment stablecoins. Beyond this threshold, issuers must qualify as depository institutions authorized at a national level.
This legislation represents a significant effort by Lummis and Gillibrand to shape the digital assets market. It echoes previous unsuccessful attempts to establish legal parameters for decentralized finance and determine jurisdiction for federal agencies over cryptocurrencies.
Coin Center strongly opposes the bill, particularly criticizing the complete ban on algorithmic payment stablecoins. They argue that such a ban not only stifles innovation but also violates the developers’ First Amendment rights. Coin Center advocates for a more flexible approach, like the one proposed in the “Clarity for Payment Stablecoins Act,” which suggests a two-year moratorium on new algorithmic stablecoins instead of an outright ban. This approach allows for ongoing innovation and examination by regulatory bodies.
The debate over the regulation of algorithmic stablecoins extends to constitutional rights, with critics arguing that the prohibition could be viewed as a prior restraint on free speech. This aspect highlights the complex nature of regulating emerging technologies while safeguarding fundamental liberties. Coin Center contends that any regulation must be narrowly tailored to serve a compelling government interest, a standard they believe the current bill fails to meet.
The Lummis-Gillibrand Payment Stablecoin Act marks a significant milestone in the regulation of stablecoins in the United States. However, its ban on algorithmic stablecoins has sparked controversy, with critics asserting that it inhibits innovation and raises constitutional concerns. This debate underscores the challenges of regulating emerging technologies while balancing innovation and consumer protection.
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