I have gone deep into the rabbit hole of stablecoins after ignoring them since 2017. The growth of stablecoins is something I can no longer ignore. There is no denying that Tether has created one of the most successful companies on planet Earth—a complete behemoth! Tether makes about $22.8 million net profit per employee. NVIDIA only makes about $1.01 million in profit per employee, for context. The stablecoin business is in global demand and a profitable business model, as more private and public companies aim to create stablecoins, we need a legal framework, and this Act aims to do that.
Overview: The Lummis-Gillibrand Payment Stablecoin Act is a legislative proposal introduced in the U.S. Senate aimed at regulating the issuance and use of stablecoins in the United States. The bill seeks to create a legal framework for stablecoins, particularly focusing on their use as payment instruments, to ensure stability, transparency, and security in the digital payments ecosystem.
- Regulation of Stablecoin Issuers: The Act requires stablecoin issuers to be regulated financial institutions, such as banks, and to maintain 1:1 reserves of cash or cash-equivalents for every stablecoin issued.
- Bans on Algorithmic Stablecoins: The Act proposes a ban on unbacked or algorithmic stablecoins that do not maintain stable value through tangible reserves.
- Issuance Limits for Non-Bank Entities: Non-bank stablecoin issuers would face a maximum issuance limit of $10 billion, reducing their market influence compared to bank-issued stablecoins.
- Increased Consumer Protection: By ensuring stablecoins are fully backed by cash or cash-equivalents, the Act aims to protect consumers from the risks of insolvency or sudden devaluation associated with unbacked stablecoins.
- Regulatory Clarity: Provides clear rules for stablecoin issuers, which can boost confidence in the market and encourage more institutional participation.
- Enhanced Financial Stability: The Act’s emphasis on regulated issuers and reserve requirements aims to enhance the stability of the financial system by preventing systemic risks associated with unregulated stablecoins.
- Boosting U.S. Dollar Dominance: By supporting regulated, dollar-backed stablecoins, the Act helps maintain the global dominance of the U.S. dollar in digital transactions.
- Potential Market Concentration: Limiting issuance to regulated entities and placing caps on non-bank issuers may concentrate market power among a few large banks, reducing competition and innovation.
- Impact on Non-U.S. Stablecoins: The Act could limit the use of popular non-U.S. stablecoins like Tether within the U.S., potentially disrupting cross-border transactions and liquidity.
- Regulatory Burden: New compliance requirements could be costly and time-consuming for issuers, possibly slowing down innovation in the stablecoin space.
Relevant Impact on America:
- Enhanced Payments Infrastructure: The Act aims to modernize the U.S. payments system by integrating stablecoins into regulated financial frameworks, making digital payments faster and more secure.
- Encouraging Financial Innovation: By establishing clear guidelines, the Act seeks to foster innovation in financial technology while ensuring stablecoins are safe and reliable for everyday use.
- National Security and Anti-Money Laundering: The Act supports better oversight and control over digital assets, helping to combat money laundering and other illicit financial activities.
I personally see a lot of good from this proposal. #1 it brings clarity in America for stablecoins so that issuers can establish in America and help preserve the dollar as the world reserve currency. I also see a few weaknesses that limit private companies and the free market to compete on solutions as they have a limit to how much they can issue.
Share your thoughts. I would love to have some dialogue about this and hear what others are thinking. Thanks for reading.
