A newly introduced bill in the United States Senate aims to reshape the landscape of the stablecoin market by potentially paving the way for U.S. banks to issue U.S. dollar-pegged stablecoins.

The Payment Stablecoin Act, introduced on April 17, has drawn attention from financial institutions and market watchers alike.

S&P Global Ratings, in a research note on April 23, suggested that the bill could provide an impetus for banks to engage more actively in the stablecoin sector. This involvement could come at the expense of prominent non-U.S. stablecoin issuers like Tether, which currently holds a market cap of $110 billion.

The bill proposes a cap of $10 billion on issuance by non-bank stablecoin firms and prohibits the issuance of “unbacked” algorithmic stablecoins. Furthermore, it mandates that stablecoin issuers maintain one-to-one cash or cash-equivalent reserves.

According to S&P Global Ratings, should the bill pass and subsequent banking regulations be adapted, banks could gain a competitive edge. Institutions lacking a banking license would be restricted to issuing no more than $10 billion in stablecoins, potentially limiting the operations of large entities such as Tether.

Tether, recognized as the leading stablecoin by volume, is issued by a non-U.S. entity and would not comply with the stipulations of the proposed Payment Stablecoin Act. The non-compliance would prevent U.S. entities from holding or transacting in Tether, likely decreasing its demand while favoring stablecoins issued within the U.S.

S&P pointed out that Tether’s transactions mostly took place outside of the U.S. and were mostly fueled by retail, remittances, and transactions in emerging economies.

In introducing the bill last week, Democratic Senator Kirsten Gillibrand declared that enacting a stablecoin regulatory framework was “absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers, and cracking down on money laundering and illicit finance.”
However, not everyone was delighted with the bill’s proposed changes.

Coin Center, a crypto advocacy organization, expressed reservations over the law, stating that it would be “bad policy” to ban algorithmic stablecoins and that it was an unconstitutional act protected by the First Amendment.