A new bipartisan bill has been introduced in the US Congress, aiming to create a regulatory framework for stablecoins. The bill, co-sponsored by Senator Cynthia Lummis (R-WY) and Senator Kirsten Gillibrand (D-NY), was designed to address the growing concerns around regulation of these digital assets.
In an interview with Yahoo Finance's Jennifer Schonberger, Senator Lummis provides insights into the key provisions of the bill. She notes that the legislation "requires 100% asset-backed stablecoins," effectively prohibiting the use of algorithmic stablecoins. The assets backing the stablecoins can range from hard currencies to US Treasurys, but they must be "pegged to the U.S. dollar."
The goal of this requirement, according to Lummis, is to protect consumers in the event of a bank failure or other financial disruption. However, she acknowledges that if a non-bank entity were to experience a failure, the bill mandates that the stablecoin backing must be held by "a separate custodian," ensuring that the funds are not used for other purposes and are "walled off" from the issuer's "non-stablecoin activities."
Lummis emphasizes that this structure is designed to provide companies with "enough flexibility to innovate" while still safeguarding consumers. She notes that the "sweet spot" the bill aims to strike is one that allows for innovation in the stablecoin space while implementing safety measures to mitigate risks and protect users.
By introducing this bipartisan legislation, Lummis explains the lawmakers hope to establish a clear regulatory framework for stablecoins in the United States, addressing the concerns around oversight that have arisen as the digital asset ecosystem continues to evolve.
To see Yahoo Finance's explanation of stablecoins, click here.
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
BRAD SMITH: There is new bipartisan bill swirling now aimed at a regulatory framework for stablecoins that would protect consumers. And we have the perfect guest to talk about this. Republican Senator from Wyoming, Cynthia Lummis alongside Yahoo Finance's Jennifer Schonberger. Jennifer, I'll toss things on over to you.
JENNIFER SCHONBERGER: Thanks so much, Brad. That's right. Senators Cynthia Lummis and Kirsten Gillibrand rolling out brand new legislation to regulate stablecoins. Senator Lummis joins me now. Senator, always great to see you. Thanks so much for being here.
CYNTHIA LUMMIS: It's great to see you Jen. And by the way, that was a fabulous little primer on stablecoins. Well done.
JENNIFER SCHONBERGER: Well, thank you. And building on that, how does this new bill protect consumers, especially when it comes to runs on stablecoins. Akin to the one we saw when circle, the largest US stablecoin issuer ended up breaking the buck when we learned that billions of its reserves were tied up in the failure of Silicon Valley Bank.
CYNTHIA LUMMIS: Well, our bill requires 100% hard currency backed stablecoins. We don't allow algorithmic stablecoins. And we require that stablecoins in the United States, pursuant to our bill be 100% asset backed. Now that could be hard currency like US dollars. It could also be US treasuries or other assets that are commonly recognized in the Fiat world and very much pegged to the US dollar.
JENNIFER SCHONBERGER: What happens Senator if a stablecoin issuer fails? Will holders of that stablecoin be made whole just like depositors in a bank when a bank fails?
CYNTHIA LUMMIS: Well, the short answer is yes. And the way that the legislation tries to provide for that is multiple. One is, if the issue is a bank, again they have to be 100% hard asset backed. It's not like a fractional reserve like normal banking assets. Then if it's issued by a non-bank, a trust company, the trust company would have to have a separate custodian to make sure that the stablecoin backing is not on the balance sheet of other for use for other purposes.
So it's definitely sequestered in a way that would protect the users. And then in the event of a failure of a company, we are incorporating the FDIC receivership and conservatorship language and incorporating it into the stablecoin world. So if there's an insolvency, there's a process to protect the holders of the assets.
JENNIFER SCHONBERGER: So given that banks and non-banks can issue stablecoins under this legislation. Curious how this legislation would deal with PayPal and its issuance of a stablecoin. And whether a retailer like Walmart or meta who may want to reproach issuing a stablecoin. How that would work under your legislation if that's possible?
CYNTHIA LUMMIS: Well, the issuers could be a bank or a non-bank trust company. So I'm assuming that if it is one of the entities that you just mentioned that they would go the non-bank trust company route. That they would have to use a custodian that is subcontracted for this purpose or if they're doing other business, which all of the entities that you named are, they would have to have their stablecoin business walled off from their non stablecoin activities.
So we think we're providing enough flexibility to innovate in this space in the United States. And also providing consumer protections. Our goal is to find that sweet spot, to make sure that we are innovating and not only innovating. But leading in the United States in this space. We don't want to see our failure to legislate and have a clear rules of the road for Americans.
We want to make sure that this industry is robust strong innovative and very present within the United States. We don't want companies to have to go to Europe or elsewhere to find a clear regulatory framework that they can use. There are safeguards such as if a US issuer issues and knowingly fails to comply. There are fines.
And there are abilities to issue from the existing dual banking system. The states and the federal government will both have opportunities here. There are different regulatory mechanisms if you're under a $10 billion business versus over a $10 billion business. States would be more able to regulate in an under $10 billion stablecoin business.
So we've tried to provide enough flexibility with regard to the choices of entities, whether bank or non-bank, whether state or federal to people issuing stablecoins. But still allowing them to innovate. So if you had a PayPal which is clearly larger than 10 billion, there's a regulatory framework for them to use that would be different from, say, a startup.
JENNIFER SCHONBERGER: What's your plan to get this bill into law, Senator or will it go as an individual bill through committee or do you think it could be attached to some larger must pass legislation. And what are the odds do you think that this thing, this bill could actually pass, is there enough support in the Senate? Are you working with members of the House that have their own version of a stablecoin bill?
CYNTHIA LUMMIS: Senator Gillibrand and I are working with members of the House, particularly Patrick McHenry and Maxine Waters. The chairman and ranking minority member respectively of the House Financial Services Committee. We have entertained a variety of vehicles that this might be attached to.
So we're working with Senate leaders to see if there is a preferred vehicle that the stablecoin bill could ride along with. We do believe that the stablecoin component of the regulatory framework that Senator Gillibrand and I have laid out for all digital assets, including digital assets that are commodities like Bitcoin. Digital assets that are securities and would be regulated by the SEC.
Non-fungible tokens, CBDCs. We've created this regulatory framework for each of those contemplated digital assets. The one that seemed to rise to the top in 2024 as having the most legs to get across the finish line this year is the stablecoins component. So we pulled it out of the larger Lummis Gillibrand bill.
We put in the language of the FDIC insolvency provisions to add that added layer of protection to make sure that if there is a conservatorship or a receivership that we're using procedures that already exist and with which banks are familiar to have that an insolvency protection. And we are ready and able to work with McHenry and waters, and anyone else who's interested.
Now that our bill has been filed, it's also out there for the stablecoin industry to look at and comment on, and get back to us. So we can make sure that it's had adequate vetting before it moves forward. We're looking forward to marrying our bill with a House version. And then see whether the House has the political heft to move it forward or whether the Senate moving it first is the preferred option.
So as you can see procedurally, we're looking at all available avenues to try to get a stablecoin bill across the finish line in 2024.
JENNIFER SCHONBERGER: Well, Senator please keep us posted on this progress we'll have to leave the conversation there. But thank you so much as always, for your insight.
CYNTHIA LUMMIS: My pleasure, Jen. Thanks for reporting on this. We think we're making headway.
