New US Senate Bill Could Encourage Banks to Enter Stablecoin Market: S&P Global

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April 25, 2024 11:01 EDT
| 3 minute read

New US Senate bill could encourage banks to enter stablecoin market: S&P Global

A new stablecoin-focused bill introduced in the U.S. Senate could encourage U.S. banks to enter the stablecoin market, according to global ratings agency S&P Global Ratings. .

S&P Global Ratings claimed in the report Clarity in U.S. regulations could encourage traditional financial institutions to enter the stablecoin market, potentially weakening Tether’s USDT advantage, it said on Wednesday.

Stablecoin regulations threaten Tether’s dominance, paving the way for US bank-backed alternatives

On April 17th announcement, two U.S. senators, Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), drafted the bill for months and was expected to be enacted in 2024. Introduced a bill, the Lumis Gillibrand Payments Stablecoin Act. According to S&P, it could encourage banks to participate in the stablecoin market.

However, the proposed bill would not allow Tether, a stablecoin based outside the US, which could reduce the study In a note dated April 23, S&P Global Ratings shared insights regarding the Payments Stablecoin Act, which was introduced in the Senate on April 17.

The rating agency said stablecoins are a potential “key pillar of financial markets” and calls BlackRock’s recently launched BUIDL fund the efficiencies that stablecoins can bring in the tokenization of assets and digital bonds. It pointed to this as evidence of security and enhanced payment security.

S&P Global Ratings noted that the approval of the stablecoin bill could accelerate blockchain innovation among institutional investors, particularly in tokenization and digital bond issuance with on-chain payments. This increase in institutional use cases for stablecoins opens opportunities for banks as stablecoin issuers and could reduce Tether’s dominance in the global stablecoin market.

If passed, the bill would require stablecoin issuers to maintain a 1:1 cash or cash equivalent reserve to back their tokens, and would require stablecoin issuers to maintain 1:1 cash or cash-equivalent reserves to back their tokens, allowing them to use algorithms for illicit purposes such as money laundering. The use of stablecoins will be prohibited.

Additionally, S&P Global Ratings notes that the proposed $10 billion issuance limit for non-banking companies could pose challenges for Tether, currently the largest USD-linked stablecoin issuer with a market capitalization of $110 billion. emphasized. Because a non-US entity issues Tether, the proposed bill would not consider Tether to be a permitted payments stablecoin.

S&P Global says:

“If the bill is approved and relevant banking regulations come into force, the new rules will give banks a competitive advantage by limiting the issuance of financial institutions without a banking license to a maximum of $10 billion. There is a possibility that

US stablecoin bill could disrupt Tether and promote domestic alternatives

As a result, U.S. companies will no longer be able to hold or trade Tether, reducing demand for stablecoins, while potentially increasing demand for stablecoins issued by U.S. companies.

S&P Global further observed that much of Tether’s trading activity occurs outside the United States and is primarily driven by trading in emerging markets, retail activity, and remittances.

Additionally, the report notes that the Securities and Exchange Commission’s removal of the requirement for custodians to report digital assets on their balance sheets will lead to the emergence of new providers of digital asset custody services and increase competition in the market. It was suggested that there is a possibility that the situation may intensify.

S&P Global Ratings has previously criticized USDT for its perceived shortcomings compared to its competitors in fulfilling its primary function of maintaining a stable value at the dollar.

The development of this bill comes amid concerns about stablecoins, particularly their potential use in illegal activities. Sen. Lummis previously called on the Department of Justice to investigate stablecoin issuer Tether for allegedly funding the terrorist organization Hamas.

Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, has also expressed interest in a stablecoin bill.he recently pointed out He said he is open to pushing stablecoin legislation in conjunction with legislation and other measures that would allow banks to do business with marijuana businesses. The House of Representatives is also working on a version of the stablecoin bill.

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