S&P Global Report Unveils Potential for US Stablecoin Market Transformation

The Lummis-Gillibrand Payment Stablecoin Act, which will be introduced on April 17, 2024, is anticipated to significantly alter the stablecoin industry in the United States, per a recent evaluation by S&P Global Ratings.

The research, which was published by Andrew O’Neill and Mohamed Damak, suggests that the new regulation may lead to clearer constraints and more institutional backing for stablecoins. The proposal allows approved non-bank financial institutions to issue stablecoins under strict regulatory monitoring with the aim of enhancing user confidence and market stability.

By enforcing tight rules on asset reserves and operating transparency, the bipartisan proposal establishes the foundation for stablecoins to become widely recognized digital currencies for institutional and everyday usage.

Market Dynamics Shift With New Legislation

The S&P Global Ratings analysis delves into the potential market dynamics following the enactment of the Lummis-Gillibrand Payment Stablecoin Act. With restrictions on non-banking entities’ stablecoin issuance capped at $10 billion, the legislation aims to level the playing field for traditional banks, potentially reducing the dominance of foreign-issued stablecoins like tether (USDT).

Damak and O’Neill highlight the impact on tether, stating, “Tether, the largest stablecoin by outstanding volume, is issued by a non-U.S. entity and therefore not a permitted payment stablecoin under the proposed bill. This means that U.S. entities couldn’t hold or transact in tether, which may reduce demand while boosting U.S.-issued stablecoins. We note, however, that tether transaction activity is predominantly outside the U.S., in emerging markets, and driven by retail users and remittances.”

While the bill faces criticism for its potential to stifle innovation and infringe on free speech, it opens doors for new opportunities in banking and financial services, particularly in digital asset custody. The S&P report suggests that the proposed legislation could prompt changes in SEC regulations, fostering a more competitive landscape and encouraging innovation in blockchain-based financial services.

Despite the concerns raised by Coin Center regarding potential stifling of innovation, the Lummis-Gillibrand Payment Stablecoin Act signals a significant step towards regulatory clarity and stability in the U.S. stablecoin market.