According to a recent report by The Block, international credit rating agency S&P Global Ratings published a commentary suggesting that the newly proposed U.S. stablecoin bill, if passed, could encourage banks to enter the stablecoin market and weaken Tether's (USDT) dominance.
Key Insights from S&P Global's Analysis
S&P Global highlighted that the Lummis-Gillibrand Payment Stablecoin Act, introduced last week by Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand, aims to establish a regulatory framework for stablecoins. The agency stated:
"Regulatory clarity should encourage banks to enter the stablecoin market. However, Tether—currently the largest stablecoin by market cap—is issued by a non-U.S. entity and would not be permitted under the proposed bill. This could reduce demand for such dollar-pegged stablecoins."
Impact on Tether’s Market Position
- U.S. Entities Restricted: The bill would prohibit U.S. entities from holding or transacting with Tether, potentially lowering its demand while boosting U.S.-issued stablecoins.
- Emerging Market Focus: Tether’s primary trading activity occurs in non-U.S. emerging markets, driven by retail users and remittances.
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Advantages for Banks Under the Proposed Bill
The bill introduces a $10 billion issuance cap for non-bank entities, favoring banks as stablecoin issuers. S&P Global noted:
"The bill’s passage could accelerate institutional blockchain innovation, particularly in tokenized payments or digital bond issuance. Growth in institutional stablecoin applications may create opportunities for banks while diminishing Tether’s dominance."
Key Provisions of the Bill
- Reserve Requirements: Stablecoin issuers must hold 1:1 cash or cash-equivalent reserves.
- Compliance Measures: Issuers and users must prevent illegal activities like money laundering.
- Algorithmic Stablecoin Ban: Prohibits the use of algorithmic stablecoins (e.g., TerraUSD-style models).
- Decentralized Stablecoins: Regulatory focus remains on centralized issuers, leaving decentralized options (e.g., Dai, Frax) in a gray area.
FAQs About the Stablecoin Bill
1. How would the bill affect Tether’s market share?
The bill restricts U.S. entities from using Tether, potentially reducing its demand in favor of U.S.-compliant stablecoins like USDC or PayPal’s PYUSD.
2. What are the reserve requirements for stablecoin issuers?
Issuers must maintain 100% reserves in cash or cash-equivalent assets to ensure stability and redemption guarantees.
3. Why are algorithmic stablecoins banned?
The collapse of TerraUSD in 2022 demonstrated risks associated with non-collateralized models, prompting stricter oversight.
4. How might banks benefit?
Banks gain a competitive edge with no issuance caps, enabling them to leverage existing regulatory frameworks and customer trust.
👉 Explore banking opportunities in crypto
Conclusion
The Lummis-Gillibrand Stablecoin Act represents a pivotal step toward U.S. regulatory clarity, potentially reshaping the stablecoin landscape by favoring institutional players and sidelining non-compliant issuers like Tether. While its impact on global crypto markets remains uncertain, the bill underscores growing efforts to integrate digital assets into mainstream finance.
For further updates on crypto regulation, stay tuned to authoritative sources and industry analyses.
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