US Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) have introduced the Lummis-Gillibrand Payment Stablecoin Act, proposing comprehensive regulation for stablecoins in the US.
The bill mandates operational and reserve requirements for payment stablecoin issuers, aiming to strengthen the US dollar’s dominance. However, it has faced criticism, particularly regarding its ban on algorithmic stablecoins.
Overview of the bill
The Lummis-Gillibrand Payment Stablecoin Act defines payment stablecoins as dollar-pegged digital assets used for payments or settlements. Key provisions of the bill include operational requirements for issuers to operate through subsidiaries, deal exclusively in dollar-backed tokens, and ensure full backing by reserve assets. Additionally, stablecoin issuers would be required to disclose their reserve assets to the public and utilize non-depository trusts as custodians.
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Ban on algorithmic stablecoins
One of the most controversial aspects of the bill is its ban on algorithmic stablecoins, which rely on algorithms rather than full collateralization to maintain their value.
Critics, including Coin Center, argue that this ban stifles innovation and raises constitutional concerns. Coin Center suggests a more nuanced approach, such as a moratorium on new algorithmic stablecoins, to allow for ongoing innovation and examination by regulatory bodies.
Senators said that this regulatory framework is crucial for maintaining the U.S. dollar’s dominance and ensuring consumer protection. The bill also introduces a $10 billion limit for non-depository trust institutions to issue payment stablecoins, beyond which issuers must qualify as depository institutions authorized at a national level.
This move represents a concerted effort by Lummis and Gillibrand to shape the digital assets market, echoing previous unsuccessful attempts to define legal parameters for decentralized finance and establish jurisdiction for federal agencies over cryptocurrency.
Coin Center’s concerns on free speech and innovation
Coin Center has voiced strong opposition to the bill, particularly criticizing its complete ban on algorithmic payment stablecoins. They argue that such a ban is not only detrimental to innovation but also unconstitutional.Â
According to Coin Center, the ban on algorithmic stablecoins equates to a ban on publishing code, which they claim infringes on the First Amendment rights of developers.
They advocate for a more nuanced approach, such as the one taken in the“Clarity for Payment Stablecoins Act,” which proposed a two-year moratorium on new algorithmic stablecoins instead of an outright ban.Â
This approach, they suggest, is less restrictive and allows for ongoing innovation and examination by regulatory bodies.
The constitutional debate
The debate over the regulation of algorithmic stablecoins extends to constitutional rights, with critics arguing that the prohibition could be seen as a prior restraint on free speech. This aspect highlights the complexity of regulating emerging technologies without infringing on fundamental liberties.Â
Coin Center argues that any regulation must be narrowly tailored to serve a compelling government interest, a criterion they believe the current bill fails to meet.
The Lummis-Gillibrand Payment Stablecoin Act represents a significant step in the regulation of stablecoins in the United States. However, its ban on algorithmic stablecoins has sparked controversy, with critics arguing that it stifles innovation and raises constitutional concerns.
The debate underscores the challenges of regulating emerging technologies while balancing innovation and consumer protection.
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