US Senators Lummis, Gillibrand Pass Stablecoin Legislation With New Bill

U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (DN.Y.) are taking another swing at crypto-specific legislation, with a narrow bill that seeks to define how stablecoins — cryptocurrencies that hold value maintain with another asset or currency – will operate in the US

Lawmakers unveiled a new stablecoin bill on Wednesday in the latest effort to create legislation that directly addresses this corner of the crypto market. Under their proposed bill, payment stablecoin issuers would have reserve and operational requirements, including the need to create subsidiaries specifically to issue stablecoins. The bill would also require stablecoin issuers to trade in dollar-backed tokens.

A payment stablecoin, as defined by the bill, would be any dollar-pegged digital asset “that is, or is designed to be used as a means of payment or settlement.” Issuers would be “required” to convert to dollars, and the asset itself would not be a security. Issuers must be either non-depository trust companies registered with the Federal Reserve Board of Governors or a depository institution “authorized as a national payment stablecoin issuer.” Both state and federal regulators will have roles in overseeing these entities.

Stablecoin issuers will also be required to ensure that their tokens are fully backed by reserve assets and disclose to the public what those assets are. They would also have to use a non-custodian trust as a custodian, and the trust would have to use a custodian as a sub-custodian, according to the bill.

The bill also appears to ban algorithmic stablecoins, which are typically undercollateralized tokens designed to maintain their value through algorithmic mechanisms.

In a statement, Gillibrand said a regulatory framework for stablecoins “is absolutely necessary to maintain the US dollar’s dominance,” and the proposed bill would keep the existing dual banking system intact.

“It protects consumers by establishing one-to-one reserves, banning algorithmic stablecoins and requiring stablecoin issuers to comply with US anti-money laundering and sanctions rules,” she said. “To draft the strongest possible bill, our offices have worked closely with the relevant federal and state agencies and I am confident that this legislation can earn the necessary support in the Senate and the House.”

Her counterpart, Lummis, said the bill also meets “the growing demand for our ever-evolving financial industry” in a statement, echoing Gillibrand’s point about the dual banking system and the dollar’s dominance.

The bill created a $10 billion cap for non-depository trust institutions to be able to issue payment stablecoins. Once the issuer exceeds that amount, it must be “a depository institution authorized as a national payment stablecoin issuer,” the bill states. Currently, the largest US-based stablecoin issuer, Circle (with $33 billion in outstanding (USDC)), is not a depository trust institution. The second largest, Paxos, does have a limited purpose trust charter through the New York Department of Financial Services, although its market capitalization falls well below the $10 billion cutoff. A Senate staffer described the $10 billion cap as the approximate cutoff between a small community bank and a larger local financial institution with systemic risk potential.

Lummis and Gillibrand have jointly introduced a number of bills addressing the digital asset market, including a bill last summer that would create legal definitions for decentralized finance and draw lines for where federal agencies such as the Commodity Futures Trading Commission have jurisdiction over crypto . Although those bills have gone nowhere, a Senate staffer told reporters Tuesday that lawmakers have sought feedback from federal regulators and the White House.

Stablecoin legislation has long been seen as the type of crypto-specific legislation most likely to become law in the US, although progress has been slow. House Financial Services Chairman Patrick McHenry (RN.C.) and Ranking Member Maxine Waters (D-Calif.) have been working on stablecoin legislation for years. A bill advanced out of committee last year, but progress stalled after then-Speaker of the House Kevin McCarthy was ousted.