US Payment Stablecoin Act could pose trouble for Tether

of Payment stablecoin lawA bill introduced in the US Senate on April 17 could cause problems for Tether and algorithmic stablecoins.

A research note published by S&P Global Ratings highlights some of the Act’s proposals and details their potential consequences.

Importantly, if passed in its current form, the Payments Stablecoin Act would encourage U.S. banks to enter the stablecoin market, giving them a competitive advantage. Ta.

Among other measures, the law would limit non-bank stablecoin companies to $10 billion, ban unbacked algorithmic stablecoins, and require all issuers to offer provably 1:1 cash or require you to hold cash equivalents.

Assuming the Payment Stablecoin Act is passed and applicable banking regulations comply, the Payment Stablecoin Act would pave the way for the largest banks in the United States to become involved in stablecoins. It would also create problems for offshore operators like Tether.

What does the Payment Stablecoin Act mean for Tether?

Frankly speaking, it would be no good. Tether is not based in the United States, is not a bank, is not backed by cash or cash equivalents, and has a market capitalization that far exceeds the $10 billion limit allowed by the Payment Stablecoin Act. have. Furthermore, the company’s chances of obtaining a banking license in the United States are almost zero, given its past failures due to the law.

Of course, this doesn’t mean Tether has to close up shop overnight. It violated many rules and regulations and has lived to tell the tale. This means that USDT does not qualify as a permitted payments stablecoin in the country at the apex of the global financial system. This is clearly not good for the long-term survival of the business.

The law could also put pressure on Tether to conduct proper audits and prove its reserves. After all, why would any rational economic entity choose to do business with a shady offshore operator that claims to have full support when it could do business with a regulated company like JPMorgan Chase? Is it (Nasdaq: JPM) or Wells Fargo (Nasdaq: WFC) and enjoy all the protection it brings?

The US is serious about stablecoins

The Payment Stablecoin Act would be a major step forward in terms of providing much-needed regulatory clarity in the United States.

This marks a shift in gear as the US gets serious about regulating digital currencies, particularly stablecoins. last week, Brookings Institution paper It labeled the unchecked proliferation of US dollar stablecoins a national security issue and called for strong regulations to deal with it.

As the US government understands stablecoins and their potential impact, we can expect more competitors to be regulated and stricter enforcement of AML/CTF rules for issuers, exchanges, wallet providers, and even nodes. We expect to see increased pressure on companies and validators to cooperate with law enforcement and even enforce the rules themselves. .

Although the future looks bleak for companies like Tether that played fast and loose with the law, stronger regulation could ultimately be a good thing. Supporters of free markets should welcome increased competition and embrace regulation that allows for safer and better options through clear rules.

Sure, this gives banks an advantage, but what’s new? The Payments Stablecoin Act will prevent new UST/LUNA events and give companies like Tether more transparency or pressure from the market. If it is possible to withdraw, the author is in favor of it.

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