Stablecoins play a crucial role in the cryptocurrency landscape today. However, policymakers- especially in the U.S. – would like to introduce more regulation for every stablecoin. Progress has been made, and a new bill may hit the floor in 2022.
Stablecoin Regulation Is Coming
A new legislative draft is in the works to ensure every stablecoin operates within a legal framework. The new bill is spearheaded by senators Kirsten Gillibrand, Cynthia Lummis, and Patrick Toomey. It is not the first venture by these senators, as it is part of the ongoing push for broader digital asset regulation. All three senators aim to have the bill in front of Congress before 2023 is in session.
Under the new bill, the focus would shift to every stablecoin in the cryptocurrency industry. That does not include any central bank digital currencies – CBDCs – but only assets used within the crypto industry. It is unclear what the bill entails, although it is rumored to be “comprehensive”. That may have interesting consequences for centralized issues like Tether and Circle.
Stablecoins are traditionally pegged to a particular fiat currency. The U.S. Dollar is the most commonly used pegged asset in this vertical. However, similar currencies tied to Euro, Pound Sterling, or Turkish Lira exist. They are far less popular, making the greenback-backed currencies of great interest to U.S. policymakers.
Centralized issuers will hold financial reserves in a bank account. They can only issue stablecoins for every deposit made and remove assets from circulation if users cash out. However, Tether recently reduced its reliance on paper cash to 0%. That move may have initiated a push for broader stablecoin regulation.
A Positive Development?
The big question is whether the new regulation will benefit the crypto industry. Laws and regulations have always been a hot topic of debate. Many see these guidelines as a way to hamper innovation and oppose decentralization. However, one can’t deny a legal framework can bring millions of people into the stablecoin and crypto space.
The three senators see their bill as a catalyst to bring more attention to cryptocurrency. More specifically, they want to introduce better oversight to the entire industry. Starting with stablecoin issuers makes sense, as it is the closest to traditional finance. That said, policing the industry vertical will pose many challenges regardless.
It is worth noting Gillibrand and Lummis remain committed to classifying cryptocurrencies as commodities rather than securities. That approach has met both criticisms – mainly from the SEC – and support – from the CFTC.