A stablecoin bill might increase US involvement and challenge Tether’s hegemony.
In addition to encouraging banks from the traditional financial sector to join the stablecoin market, regulatory certainty in the US may lessen Tether’s USDT’s hegemony.
A bipartisan stablecoin measure might give banks an edge over other financial institutions and encourage competition in the digital asset custody market, according to an S&P analysis.
The April 17 proposed Lummis-Gillibrand Payment Stablecoin Act appears poised to bring regulatory clarity to the $157 billion stablecoin industry, which is presently dominated by Tether (USDT). If approved, that is.
Fiat-pegged cryptocurrencies, known as stablecoins, provide stability in an otherwise erratic financial sector. These assets, which act as entry points to on-and-off ramp liquidity, are usually linked to sovereign currencies like the US dollar. One example of such an asset is Circle’s USD Coin (USDC).
The law would mandate that service providers without a banking license keep their market capitalization below $10 billion, but it would allow U.S. banks to create fiat-pegged tokens with no limits.
The legislative framework will provide banks with an advantage over other market participants and encourage blockchain use in the financial industry through asset tokenization and digital bond issuance, claims Andrew O’Neil, Managing Director and Co-Chair of S&P Global’s Digital Assets Research Labs.
The Lummis-Gillibrand bill does not permit offshore entities like Tether, even if it has no effect on currently available U.S.-based goods like PayPal USD. The terms might weaken USDT’s position in the market, but O’Neil pointed out that the majority of Tether’s activity and volume originate from the US.
Furthermore, the restrictions do not cover decentralized stablecoins, so products like Maker’s DAI and Frax Finance’s FRAX are beyond the scope of the plan. Since centralized systems like USDC replicate current financial processes, policymakers will probably favor them.
Finally, the S&P report predicted an influx of new providers in the digital asset custody industry, especially with an update to SEC rules that no longer require custodians to report crypto-assets on their balance sheet. crypto.news reached out to O’Neil and the S&P for further comment on the bill and its impacts.
A stablecoin is a type of cryptocurrency that serves as bedrock in crypto markets. U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced a new stablecoin bill last week that seeks to define how stablecoins will operate in the country.
The U.S. dollar is the most popular peg for stablecoins, but most stablecoin issuers aren’t subject to specific U.S. regulations, the report said. This could change following the introduction of the Lummis-Gillibrand Payment Stablecoin Act last week.
“The new rules may offer banks a competitive advantage by limiting institutions without a banking license to a maximum issuance of $10 billion,” analyst Andrew O’Neill wrote.
Tether’s USDT has a market capitalization of $110 billion, making it the third-biggest cryptocurrency, according to CoinDesk data. Circle’s USDC is in second place among stablecoins at $34 billion. Both track the U.S. dollar.
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