US Senators Introduce Bill Prohibiting Unbacked Algorithmic Stablecoins

US Senators Introduce Bill Prohibiting Unbacked Algorithmic Stablecoins

The Lummis-Gillibrand Payment Stablecoin Act bill would give federal and state regulators authority over stablecoin.

Mayowa Adebajo By Mayowa Adebajo Julia Sakovich Edited by Julia Sakovich Updated 3 mins read
US Senators Introduce Bill Prohibiting Unbacked Algorithmic Stablecoins
Photo: Gage Skidmore / Flickr

United States Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) may have just introduced a new stablecoin bill today. Tagged the Lummis-Gillibrand Payment Stablecoin Act, the bill seeks first to ensure that stablecoin issuers have their tokens fully backed. That is, their token reserves must either be one-to-one in cash or in cash-equivalent.

It also prohibits algorithmic stablecoins that do not have verifiable backing. Furthermore, the bill also disallows anyone, including issuers and users, from using stablecoins for illicit activities such as money laundering and other related acts.

Lummis-Gillibrand Payment Stablecoin Act to Help Dollar Dominance and Foster Innovation

Primarily, the Lummis-Gillibrand Payment Stablecoin Act establishes a framework that ensures that issuers back their tokens 1:1, prohibits unbacked algorithmic stablecoins, and exerts anti-money laundering rules.

However, there is more to the effect that it serves, according to Sen. Gillibrand. In a statement made available to The Block, she said:

“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the US dollar’s dominance, promoting responsible innovation, protecting consumers, and cracking down on money laundering and illicit finance.”

For all intents and purposes, the bill seeks to support innovation. However, not all kinds of innovations can be supported. Therefore, the framework is particularly focused on “responsible” innovations that will fulfill all requirements and comply with its provisions.

According to an official release, the bill has some broader ambitions. It plans to create federal and state regulatory regimes for stablecoin issuers, just like the typical dual banking system.

A typical banking system is found in the United States, where national and state banks have different regulators. The Office of the Comptroller of the Currency, for instance, oversees the operations of national banks. State regulators, on the other hand, control the state banks.

Meanwhile, despite the arrangement, sometimes there are overlapping regulatory efforts. This means that a bank may be regulated at both the state and federal levels.

Similarly, the Lummis-Gillibrand Payment Stablecoin Act bill would give federal and state regulators authority over stablecoin chartering and enforcement. Interestingly, the robust new stablecoin act also made provisions to protect customers in the case of issuer insolvency.

Looking Ahead

The need for a robust regulatory framework for stablecoins can not be overemphasized. Their use cases for quick international transactions, relatively lower fees, and the appeal they now have among programs and apps have contributed to their fast popularity.

However, with the growing relevance, regulators must not lose sight of the fact that bad actors also exist and are also evolving. Therefore, there is a constant need to keep developing legislation to be able to fully tap the potential of stablecoins and digital assets in general.

Disclaimer: Coinspeaker is committed to providing unbiased and transparent reporting. This article aims to deliver accurate and timely information but should not be taken as financial or investment advice. Since market conditions can change rapidly, we encourage you to verify information on your own and consult with a professional before making any decisions based on this content.

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Mayowa Adebajo

Mayowa is a crypto enthusiast/writer whose conversational character is quite evident in his style of writing. He strongly believes in the potential of digital assets and takes every opportunity to reiterate this. He's a reader, a researcher, an astute speaker, and also a budding entrepreneur. Away from crypto however, Mayowa's fancied distractions include soccer or discussing world politics.

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