The proposed Payment Stablecoin Act in the US has generated both support and criticism. Republican Cynthia Lummis and Democrat Kirsten Gillibrand argue that a clear regulatory framework is necessary to protect consumers and ensure the dominance of the dollar in the digital payments space. One significant proposal is to ban algorithmic stablecoins, which are not backed by real-world assets. Critics, such as Coin Center, argue that this ban would be unconstitutional as it limits free speech rights and the publication of code.
The Payment Stablecoin Act also raises questions regarding the status of certain digital assets, such as MakerDAO’s DAI, and presents challenges for Circle, the issuer of USDC, the world’s second-largest stablecoin. The act suggests that trust companies can only issue up to $10 billion in stablecoins, which could impact Circle’s current operations. Additionally, the act’s rules may not apply to Tether, the dominant stablecoin with a market cap of $110 billion, as it is based offshore.
However, there are potential benefits for consumers if the act becomes law. Stablecoins offer near-instant settlement at lower costs compared to legacy systems, which could revolutionize cross-border transactions, especially for remittances. The World Bank estimates that the remittance sector was worth $669 billion in 2023, but high transaction fees amount to $41 billion. The act aims to ensure stablecoins are backed on a one-to-one basis with dollar reserves and introduce FDIC deposit insurance for issuer insolvency.
Lummis and Gillibrand also argue that the act could mitigate de-dollarization efforts by other countries and encourage banks to issue their own stablecoins. However, the passage of the Payments Stablecoin Act is uncertain given the upcoming election and slowed legislative activity in Congress.