The Ever-Dwindling Chances for a Stablecoin Law

Last week, U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced a joint bill addressing how stablecoins could be regulated in the country. It’s the latest effort to try and get something done in the U.S. legislative front – but is it enough?

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Last week, U.S. Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced their latest joint bill, this time taking on stablecoins, the $160 billion section of the overall crypto market that’s received a fair amount of attention recently – and is seen as the area where crypto legislation is most likely to actually happen. Which still isn’t all that likely.

The new Lummis-Gillibrand bill is a lengthy proposal detailing how stablecoins issued by U.S. companies would be overseen, how they could maintain their peg (algos are out) and how consumers might be protected.

The new Lummis-Gillibrand bill creates a framework for state and federal oversight of stablecoin issuers, details a Federal Deposit Insurance Corporation (FDIC) process for possible collapses and bans algorithmic stablecoins outright.

Industry participants voiced a few immediate concerns about the new Lummis-Gillibrand bill, pointing to a lack of provisions accounting for crypto-backed tokens like DAI and the blanket ban on algorithmic stablecoins.

The bill has a comprehensive list of rules for stablecoins issued by U.S. companies but is far more limited in addressing foreign company-issued tokens, like Tether (USDT). A press release announcing the bill said “malign actors will no longer have the option to use unregulated foreign stablecoins.”

At first blush, there doesn’t appear to be a specific mechanism that would actually block them from doing so.

My colleague Jenn Sanasie asked Sen. Lummis on CoinDesk TV whether there was a specific mechanism that would prevent issuers based outside the U.S. from tapping U.S. customers.

“This is very much oriented towards a U.S.-regulated company, and so Tether, if it chooses to remain offshore [and] is happier with a different regulator, that’s a business choice for them,” she said. “But if they want the U.S. Good housekeeping stamp of approval on their product, and we hope they will, then they’ll come into compliance in the U.S.”

Tether issues the world’s largest stablecoin, the eponymous tether (USDT), with $110 billion worth of tokens in circulation according to CoinGecko. It’s also the most liquid, with CoinGecko reporting some $38 billion in 24-hour volume (the next largest stablecoin by market cap is Circle’s USDC, with $34 billion worth of tokens circulating and $6 billion in 24-hour volume). (I reached out to Tether spokespeople for comment, but haven’t heard back.)

Circle, as it stands today, wouldn’t be able to continue operating – there’s a $10 billion limit, above which stablecoin issuers would need to be state or federally chartered depository institutions.

Lummis said she wanted the company to look at the bill and determine how its compliance practices might need to change to fit.

“They probably have to get a federal charter, to be honest,” she said.

It’s also unclear to me how exactly this bill might treat stablecoins like DAI, which is issued by a decentralized entity but isn’t an algorithmic stablecoin.

Time will tell where and how this bill will proceed.

The other major effort that seems to be underway comes from the House Financial Services Committee, with reports saying Chair Patrick McHenry (R-N.C.) and Ranking Member Maxine Waters (D-Calif.) met with Senate Majority Leader Chuck Schumer (D-N.Y.) to discuss attaching a stablecoin bill to some other piece of legislation. It’s unclear just what the current version of the House bill looks like (neither McHenry’s nor Waters’ spokespeople responded to requests for comment).

And perhaps most intriguingly, Senate Banking Committee Chairman Sherrod Brown (D-Ohio) said he could support a bill if it addressed consumer protection questions and had appropriate guardrails (spokespeople for Brown also didn’t return a request for comment).

But of course, of course, of course, the clock is ticking. Lawmakers are already full swing in campaign mode. As we get to the summer, the chances of elected officials taking time off from the campaign trail for something as esoteric as stablecoins will be low. Any progress made will grind to a halt (and that’s assuming we don’t suddenly have another House speakership vacancy, though an effort to oust Mike Johnson seems to be wilting).

The more likely scenario is we may see passage during the lame-duck session, between the election and before the next Congress is sworn in. Even there, any bill would be attached to some must-pass piece of legislation, in all likelihood. This might be the next National Defense Authorization Act or some kind of budget bill.

How the stablecoin legislation efforts might evolve between now and then is anyone’s guess, though with McHenry on his way out – he’s not running for reelection – and Brown and Schumer apparently on board, there is still a better-than-negligible chance we will see a bill become a law by January.

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