Lummis & Gillibrand Release Stablecoin Legislation; Warren Pivots to Stablecoins in Anti-Crypto Campaign

Lummis & Gillibrand Release Stablecoin Legislation 

What happened?

Last Tuesday, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced their Payment Stablecoin Act to regulate the issuance and operation of stablecoins. The bill defines a payment stablecoin as a crypto asset that is designed to maintain a stable value relative to a fiat currency like the US dollar (USD), where the issuer is obligated to redeem the stablecoin for a fixed amount of USD. Importantly, the bill explicitly bans the creation, issuance, or origination of algorithmic stablecoins, which rely on an algorithm to maintain a stable value.

The bill also specifies that issuers can only be registered non-depository trust companies or authorized depository institutions and allows regulatory bodies to further refine the definition and set operational standards. After authorization, an issuer is then required to: maintain full reserves to back the stablecoins; maintain operational standards typical of traditional banks; comply with anti-money laundering (AML) and countering financing of terrorism (CFT) laws; and be subject to examination of the nature of their operations and financial condition.

What does this mean?

This bill contains several issues specific to DeFi. First and foremost, only centralized, custodial businesses can be stablecoin issuers in the legislation. The bill’s broad definitions combined with its regulatory requirements impose requirements that force centralization — e.g., maintaining full reserves, submitting to regular audits, and implementing AML/CFT compliance programs. Moreover, the bill bans software in the form of its prohibition on “algorithmic stablecoins,” which is a Pandora’s box that Congress should avoid opening. 

Warren Pivots to Stablecoins in Anti-Crypto Campaign 

What happened?

Last Tuesday, Senator Elizabeth Warren (D-MA) wrote a public letter to Secretary of the Treasury Janet Yellen discussing her concerns with sanctioned states and entities validating crypto transactions. Senator Warren echoed her repeated call to expand application of the Bank Secrecy Act to validator node operators and include regulation of validator nodes in any future stablecoin legislation through AML provisions.

What does it mean?

Given recent press reports around the possibility that stablecoin legislation may be gaining steam, Senator Warren’s pivot to the issue is unsurprising. Imposing BSA requirements on U.S. blockchain miners and validators would, of course, do absolutely nothing to prevent sanctioned entities from validating and mining blocks of public blockchains. It would, however, eliminate U.S. participation in validating and mining, which one can only assume is the intent of the idea. 

Read further discussion of this issue in our blog post from last week.