0
0
US Senators Introduce Controversial Stablecoin Ban Legislation
A recent legislative bill put forth by US Senators Cynthia Lummis and Kirsten Gillibrand has sparked backlash within the cryptocurrency industry due to its proposal to outlaw algorithmic stablecoins. The Lummis-Gillibrand Payment Stablecoin Act, criticized by former Blockchain Association member Jake Chervinsky on April 17, has been deemed “deeply flawed” by industry insiders.
Chervinsky expressed concern that the bill would exclusively allow for centralized and custodial stablecoins, limiting the innovation and decentralization that algorithmic stablecoins bring to the market. He highlighted that the proposed prohibition contradicts the recommendations he presented in his Congressional testimony in 2023, advocating for a more nuanced approach to regulating different types of stablecoins.
Joining Chervinsky in opposition to the ban on algorithmic stablecoins is Aaron Day, Chairman and CEO of the Daylight Freedom Foundation and a Brownstone Institute fellow. Day argued that the legislation would inadvertently benefit traditional banks at the expense of the crypto industry, potentially paving the way for central bank digital currencies (CBDCs) to dominate the financial landscape.
Pushback Against Harsh Restrictions
FOX Business reporter Eleanor Terrett shed light on the evolving nature of the Lummis-Gillibrand bill, suggesting that the initial draft did not impose such stringent limitations on stablecoin operations. According to her sources within Washington, DC, lawmakers initially sought to strike a balance between various stakeholders but ultimately veered towards a more restrictive stance on algorithmic stablecoins.
While the reasons for this shift remain undisclosed, industry insiders have expressed reservations about the bill in its current form despite bipartisan support from certain quarters. Notably, there appears to be a growing sentiment within the Senate for tighter regulation of stablecoins, prompting legislators to take a more assertive approach.
Legislation Targets Unbacked Stablecoins
One of the key provisions of the Lummis-Gillibrand Payment Stablecoin Act focuses on outlawing unbacked algorithmic stablecoins, a move likely influenced by the previous collapse of Terraform Labs’ TerraUSD in 2022. This incident, which caused significant market turmoil by erasing billions in value, underscored the potential risks associated with algorithmic valuation models.
Despite the ban on certain stablecoin variants, the bill mandates that only recognized financial institutions are permitted to issue stablecoins, raising questions about the future of existing stablecoin projects. Moreover, the legislation seeks to prevent illicit activities involving stablecoins by instituting rigorous federal and state oversight frameworks.
Image/Photo credit: source url
