A recent legislative bill introduced by US Senators Cynthia Lummis and Kirsten Gillibrand has caused a stir within the crypto industry. The proposed ban on algorithmic stablecoins outlined in the Lummis-Gillibrand Payment Stablecoin Act has been met with criticism and concern from various experts and industry insiders. Former Blockchain Association member Jake Chervinsky labeled the bill as “deeply flawed” and warned about the ramifications of only allowing centralized and custodial stablecoins.
Chervinsky’s opposition to the ban on algorithmic stablecoins stems from the belief that regulators should focus on regulating custodial stablecoins before targeting their algorithmic counterparts. Similarly, Aaron Day, Chairman and CEO of the Daylight Freedom Foundation, argued that the bill would ultimately benefit banks rather than the crypto industry as a whole. He expressed concerns that the involvement of banks in stablecoins could pave the way for central bank digital currencies (CBDCs), a development that goes against the decentralized nature of cryptocurrencies.
FOX Business reporter Eleanor Terrett shed light on the evolving nature of the Lummis-Gillibrand bill, revealing that the initial version did not include as severe restrictions as the current one. Lawmakers had aimed for a more moderate approach to address the contentious issues surrounding stablecoins. However, the bill’s proposed ban on algorithmic stablecoins has raised eyebrows and led to growing pressure for stablecoin regulation in the Senate. Despite nominal bipartisan support, all affected parties are reportedly not enthusiastic about the bill in its current form.
The collapse of Terraform Labs’ algorithmic stablecoin TerraUSD in May 2022 seems to have influenced lawmakers’ decision to include the prohibition of unbacked algorithmic stablecoins in the legislation. The significant losses incurred during the collapse, which wiped $80 billion from the crypto market, have raised red flags about the risks associated with algorithmic valuation methods. While other algorithmic stablecoins like Ampleforth (USDD) and Frax (FRAX) continue to maintain stability, the fallout from TerraUSD serves as a cautionary tale for the industry.
Regulatory Challenges
The Lummis-Gillibrand Payment Stablecoin Act introduces significant regulatory challenges for stablecoin issuers. The bill restricts the issuance of stablecoins to depository institutions and non-depository trust institutions, effectively excluding many existing stablecoin firms from compliance. Moreover, the lack of clarity on compliance requirements further complicates the landscape for stablecoin operators. Additionally, the bill aims to curb the potential misuse of stablecoins by creating separate federal and state regulatory frameworks, adding another layer of complexity for industry stakeholders to navigate.
The Lummis-Gillibrand Payment Stablecoin Act represents a contentious and complex regulatory proposal that has divided opinions within the crypto industry. While some view the bill as a necessary step towards ensuring stability and security in the stablecoin market, others raise concerns about its potential impact on innovation and decentralization. As the debate around stablecoin regulation continues to unfold, industry players must navigate the evolving regulatory landscape to adapt and thrive in an environment of heightened scrutiny and oversight.
Leave a Reply