US Senators Introduce Bill Prohibiting Unbacked Algorithmic Stablecoins

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Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) introduced a new bill on stablecoins today, named the Lummis-Gillibrand Payment Stablecoin Act. The main goal of this legislation is to require stablecoin issuers to ensure their tokens are fully collateralized. In other words, the reserves backing these tokens must be equivalent in value to one dollar for each token issued.

The bill additionally bans stablecoins whose backing cannot be confirmed through verification. It is important to note that both issuers and users are prohibited from utilizing stablecoins for unlawful activities, such as money laundering and related offenses.

Lummis-Gillibrand Payment Stablecoin Act to Help Dollar Dominance and Foster Innovation

Mainly, the Lummis-Gillibrand Stablecoin Act sets up a system where creators must guarantee each token is backed with an equal value, bans unsupported algorithmic stablecoins, and implements anti-money laundering regulations.

According to Senator Gillibrand, there’s more to the bill’s impact than what meets the eye. She elaborated on this in a statement given to The Block.

Establishing a regulatory framework for stablecoins is essential for preserving the US dollar‘s leading position in the global market, fostering responsible technological advancements, safeguarding consumers, and combating money laundering and unlawful financing activities.

In essence, the legislation aims to encourage innovative developments. Not every form of innovation can be endorsed, though. Consequently, the structure specifically targets “responsible” innovations that meet all criteria and adhere to its guidelines.

The official announcement states that the proposed bill aims to establish regulatory frameworks for stablecoin issuers at both the federal and state levels, similar to the established dual banking system.

In the US financial scene, both national and state-chartered banks function under distinct regulatory bodies. National banks are supervised by the Office of the Comptroller of the Currency (OCC), whereas state-chartered banks come under the purview of individual state regulators.

Simultaneously, there can be overlapping regulations even with the existing setup. As a result, a bank could be subjected to regulation by both state and federal authorities.

The Lummis-Gillibrand Stablecoin Act proposal grants regulatory power over chartering and enforcement to both federal and state bodies. Notably, this legislation includes measures to safeguard customers if the issuer were to face insolvency.

Looking Ahead

It’s essential to establish a strong regulatory foundation for stablecoins. Their benefits, such as facilitating swift cross-border transactions with reduced fees, and growing attraction amongst tech programs and applications, have significantly fueled their rapid rise in popularity.

Despite the increasing importance of stablecoins and digital assets, it’s crucial for regulators not to overlook the presence of malicious actors who are also advancing. Consequently, there is a continuous requirement for creating new legislation to effectively harness the capabilities of stablecoins and digital assets in totality.

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2024-04-17 15:27