The latest stablecoin bill introduced in the Senate, if passed, could embolden banks to step into the stablecoin markets, according to ratings agency S&P Global Ratings.
The Lummis-Gillibrand Payment Stablecoin Act, introduced last week by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., would bring clarity to regulations that “should encourage banks into the stablecoin market,” the ratings agency said in a note on Wednesday. Tether, however, would not be permitted under the proposed bill, which could reduce demand for the non-U.S. based stablecoin.
“An approval of the stablecoin bill would accelerate institutional blockchain innovation, in particular for tokenization or digital bond issuances involving on-chain payments,” the ratings agency said. “The growth of institutional use cases for stablecoins would create opportunities for banks as stablecoin issuers and may also reduce Tether’s dominance in the global stablecoin market.”
The bill, if passed, will require stablecoin issuers to hold one-to-one cash or cash-equivalent reserves to back their token. It also bans algorithmic stablecoins and says issuers and users cannot use stablecoins for illicit or unauthorized purposes such as money laundering.
Banks are in, Tether is out
If the new legislation passes, it would give banks a competitive edge by limiting entities without a banking license to a max issuance of $10 billion, S&P Global said.
Tether’s dominance in the stablecoin market globally could slow since it is issued by a non-U.S. entity and is not allowed if the bill passes, the ratings agency added.
“This means that U.S. entities couldn’t hold or transact in Tether, which may reduce demand while boosting U.S.-issued stablecoins,” S&P Global said. “We note however, that Tether transaction activity is predominantly outside the U.S., in emerging markets, and driven by retail users and remittances.”
Tether did not immediately respond to a request for comment. USDT is notably the largest stablecoin by market capitalization, according to data from The Block Research team.
Sen. Sherrod Brown, D-Ohio, would be integral to the passage of a stablecoin bill. The Senate Banking Committee chair told Bloomberg last week he is open to advancing stablecoin legislation in a package with a bill to allow banks to do business with marijuana business and other measures. The House is also working on its version of a stablecoin bill.
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