If a new bill passes, banks may enter a stable coin: S&P Global

A new stablecoin-oriented bill proposed to the US Senate could encourage US banks to enter the stablecoin market, according to S&P Global Ratings.

In an April 23 research note, S&P shared that the proposals outlined in the Payment Stablecoin Act — introduced to the Senate on April 17 — could encourage banks to participate in the issuance of U.S. dollar-denominated stablecoins and create problems for large non-U.S. entities. Withdraw stable coins like Tether.

Describing the stablecoin as a “key pillar of financial markets”, the ratings agency cited BlackRock's recently launched BUIDL fund as evidence of “efficiency and improved settlement security” in promoting assets and digital bonds.

Specifically, the Lummis-Gillibrand Payment Stablecoin Act proposes to introduce a $10 billion withdrawal limit on non-bank stablecoin organizations, ban “unsupported” algorithmic stablecoins, and require stablecoin issuers to hold one-to-one cash or cash-equivalent reserves.

“If the bill is approved and the relevant banking regulations are followed, the new rules could give banks a competitive advantage by limiting the maximum amount of $10 billion to unlicensed institutions,” he said.

The rating agency also said the launch of a $10 billion offering to non-banks could spell trouble for Tether, which – with a market cap of $110 billion – is currently the largest US dollar-pegged stablecoin issuer on the market.

Related: Crypto advocacy group says Statcoin bill ‘violates free speech rights'

Tether, by far the largest stablecoin issued by a non-U.S. entity, is not an authorized payment stablecoin under the proposed bill,” S&P Global said.

“This means that US entities are unable to hold or trade in Tether, which could reduce demand while boosting US-issued stablecoins.”

S&P noted that the majority of Tether's trading activity occurred primarily outside the United States, primarily in emerging markets, retail activity and remittances.

Democrat Senator Kirsten Gillibrand said in introducing the bill last week that the regulatory framework for fixed-coins is “absolutely critical to maintaining the supremacy of the U.S. dollar, promoting responsible innovation, protecting consumers, and curbing money laundering and illicit financing.”

However, not everyone was happy with the proposals in the bill.

Crypto advocacy organization Coin Center expressed concern over the bill, saying it would be “bad policy” to ban algorithmically stable coins, and would be unconstitutional under the protection of the First Amendment.

7 ICO Options for Blockchain Fundraising: Crypto airdrops, IDOs and more.