S&P Global’s Andrew O’Neill believes that the Lummis-Gillibrand Payment Stablecoin Act could greatly impact the adoption of stablecoins in the U.S. The act promises to provide a regulatory framework that will increase confidence in stablecoins, encourage institutional usage, make it easier for banks to issue stablecoins, and simplify the provision of digital custody services. This regulatory clarity is expected to attract more banks to the stablecoin market, as the new rules may offer them a competitive advantage. Additionally, the bill is unlikely to significantly affect stablecoins already regulated by the NYDFS, such as PayPal USD, Gemini USD, and Paxos USD, as they are well below the $10 billion threshold.
In addition, O’Neill predicts that Tether’s dominance in the stablecoin market may diminish due to the proposed bill. Tether is currently the largest stablecoin by outstanding volume, but as it is issued by a non-U.S. entity, it may not be considered a permitted payment stablecoin under the new legislation. This could mean that U.S. entities would not be able to hold or transact in Tether, potentially reducing demand for the stablecoin while boosting U.S.-issued stablecoins. However, O’Neill notes that Tether’s transaction activity is mainly outside the U.S., driven by retail users and remittances in emerging markets.
Stablecoins are cryptocurrencies whose value is usually pegged to a fiat currency or commodity. Tether, issued in 2014, has been the subject of scrutiny for years. S&P Global began assessing Tether’s ability to maintain its peg to the U.S. dollar in December, giving it a ‘constrained’ rating of 4 out of 5. The rating was due to the lack of information disclosed by Tether, which raised concerns about its stability. Despite this, Tether’s price has remained relatively stable over the past few years and particularly in the last 12 months.
Another significant impact of the Lummis-Gillibrand Payment Stablecoin Act could be the emergence of more custody services in the market. The removal of the SEC’s requirement for custodians to report digital assets on their balance sheet could potentially encourage more financial institutions to provide digital asset custody in the U.S. Currently, this policy creates a capital requirement that may discourage custody services, but the new rules would eliminate this barrier and could lead to increased competition. Overall, the regulatory clarity provided by the new legislation is expected to benefit the stablecoin market by increasing confidence, attracting banks, reducing Tether’s dominance, and encouraging the growth of custody services.
