S&P Global recently analyzed how the Lummis-Gillibrand Payment Stablecoin Act could impact the U.S. stablecoin market. The act aims to provide a legislative and regulatory framework that would enhance confidence in stablecoins, promote institutional adoption, facilitate bank issuance, and simplify digital custody services. The firm’s managing director, Andrew O’Neill, believes that the regulatory clarity provided by the act could encourage more banks to participate in the stablecoin market. The bill proposes restrictions on stablecoin issuance for institutions without a banking license, potentially giving licensed banks a competitive advantage.
One significant outcome of the proposed bill, according to O’Neill, could be a decrease in the dominance of Tether in the stablecoin market. Tether, issued by a non-U.S. entity, may not be considered a permitted payment stablecoin under the new regulations. This would mean that U.S. entities would not be able to hold or transact with Tether, potentially leading to increased demand for U.S.-issued stablecoins. Despite Tether’s popularity, especially in emerging markets, the proposed regulations could impact its usage within the U.S. market.
Stablecoins are digital assets whose value is typically pegged to a fiat currency or commodity. Tether, as the largest stablecoin by volume, has faced scrutiny over the years due to concerns about its transparency and ability to maintain its peg to the U.S. dollar. S&P Global had given Tether a ‘constrained’ rating of 4 in December, citing concerns about its disclosure practices. The stability of stablecoins like Tether is crucial for maintaining trust and confidence in the broader cryptocurrency market.
One potential impact of the Lummis-Gillibrand Payment Stablecoin Act is the emergence of more custody services for digital assets. Currently, the SEC requires custodians to report digital assets on their balance sheet, creating additional capital requirements. By removing this barrier, the act could encourage more financial institutions to provide digital asset custody services. This could lead to increased competition in the custody services sector, providing more options for institutional clients looking to secure their digital assets.
Overall, S&P Global’s analysis suggests that the regulatory framework proposed by the Lummis-Gillibrand Payment Stablecoin Act could have a profound impact on the U.S. stablecoin market. By providing regulatory clarity, encouraging bank participation, potentially reducing Tether’s dominance, and promoting the growth of custody services, the bill could pave the way for increased adoption and institutional usage of stablecoins. However, the effectiveness of these regulations will depend on their implementation and enforcement, as well as the market response to the changes in the stablecoin landscape.
