A recent bill introduced by US Senators Cynthia Lummis and Kirsten Gillibrand has drawn the ire of the crypto industry over a proposed ban on algorithmic stablecoins.
Former Blockchain Association member Jake Chervinsky called the Lummis-Gillibrand Payment Stablecoin Act “deeply flawed” on April 17. warned about this the bill would only allow centralized and custodial stablecoins.
Chervinsky added that the proposed ban goes against the principles outlined in his testimony before Congress in 2023. He said in his testimony that lawmakers should focus on regulating stable stablecoins and avoid regulating algorithmic stablecoins to further research.
Aaron Day, president and CEO of the Daylight Freedom Foundation and a fellow of the Brownstone Institute, also against the proposed ban on algorithmic stablecoins and claimed the bill would benefit banks instead of crypto. He argued that banks’ involvement in stablecoins is “setting the stage” for central bank digital currencies (CBDCs).
However, the Federal Reserve has repeatedly said it does not plan to issue a CBDC because of the Fed Now system.
Shift of
FOX Business reporter Eleanor Terrett said the Lummis-Gillibrand bill did not initially include this hard restrictionsbased on her sources in Washington, DC.
Terret said lawmakers aim to “achieve moderate positions on… controversial issues,” including but not limited to the bill’s proposed restrictions on algorithmic stablecoins.
Her sources did not reveal why lawmakers changed their initial perspective, but said all parties involved are “not particularly enthusiastic about the bill” in its current state, despite its nominally bipartisan support.
The sources added that the bill is largely a sign of growing pressure on stablecoin regulation in the Senate and an indirect attempt to get lawmakers on board with a separate stablecoin bill led by House Finance Chairman Patrick McHenry Services Committee.
Bill bans unbacked stablecoins.
One section of the Lummis-Gillibrand Payment Stablecoin Act, as introduced on April 17, explicitly bans unbacked algorithmic stablecoins.
The bill and its supporting paragraphs do not describe incidents that could justify the proposed ban. However, the collapse of Terraform Labs’ algorithmic stablecoin TerraUSD in May 2022 likely played a role in lawmakers’ decision to include the ban in legislation.
The collapse – which wiped $80 billion in value from the crypto market in May 2022 – has raised concerns about algorithmic approaches to valuation – even as other competing algorithmic stablecoins such as Ampleforth (USDD), Frax (FRAX) and Ampleforth (AMPL) continue to trade. to circulate close to the value of the US dollar.
Instead, the bill only allows depository institutions and non-depository trust institutions to issue stablecoins and does not provide a clear path to compliance for existing stablecoin companies.
The bill also aims to prevent the illegal use of stablecoins and creates separate federal and state regulatory regimes, among other specific requirements.