The recent introduction of the Lummis-Gillibrand Payment Stablecoin Act has sparked criticism from industry experts within the crypto community. Former Blockchain Association member Jake Chervinsky labeled the bill as “deeply flawed” and raised concerns about its potential impact on the ecosystem. Chervinsky argued that the proposed ban on algorithmic stablecoins could stifle innovation and only allow for centralized and custodial stablecoins to thrive, going against principles he previously outlined in testimony to Congress.
Aaron Day, Chairman and CEO of the Daylight Freedom Foundation, and a fellow at the Brownstone Institute, also opposed the ban on algorithmic stablecoins. Day warned that the bill could ultimately benefit banks over the crypto industry, setting the stage for the introduction of central bank digital currencies (CBDCs). He emphasized the importance of considering the consequences of limiting the development of algorithmic stablecoins, which have played a significant role in the market.
According to FOX Business reporter Eleanor Terrett, the initial version of the Lummis-Gillibrand bill did not include the strict restrictions on algorithmic stablecoins. Lawmakers in Washington, DC, were aiming for moderate positions on contentious issues, including stablecoin regulation. However, the bill underwent changes that surprised insiders, leading to concerns from all affected parties. The bill’s current state, despite bipartisan support, has not garnered excitement among key stakeholders in the crypto industry.
The introduction of the Lummis-Gillibrand Payment Stablecoin Act reflects a growing pressure for stablecoin regulation in the Senate. Lawmakers are also indirectly engaged in a separate stablecoin bill led by House Financial Services Committee chair Patrick McHenry. The bill’s inclusion of a ban on unbacked algorithmic stablecoins is a response to the collapse of Terraform Labs’ TerraUSD in May 2022, which raised doubts about the viability of algorithmic approaches to valuation in the digital asset space.
One significant section of the Lummis-Gillibrand Payment Stablecoin Act explicitly prohibits unbacked algorithmic stablecoins, without providing a specific incident to justify the ban. The bill limits stablecoin issuance to depository institutions and non-depository trust institutions, excluding other entities from participating in stablecoin operations. Additionally, the legislation aims to prevent the illegal use of stablecoins and establishes federal and state regulatory regimes for compliance.
The Lummis-Gillibrand Payment Stablecoin Act has sparked controversy within the crypto industry due to its proposed ban on algorithmic stablecoins. Industry experts have raised concerns about the potential impact on innovation and the dominance of centralized stablecoin issuers. As the bill undergoes further scrutiny and potential amendments, it remains a focal point for debate among lawmakers, regulators, and stakeholders in the digital asset space.