What does the US stablecoin bill mean for regulated markets?

The United States has not yet passed any bills on cryptocurrencies at the federal level, although some states have taken active steps in legislation. In the federal system of the United States, bank supervision is divided between national banks and state banks, the latter of which are licensed in a specific state but may also be allowed to operate in other states, depending on state regulations.

The formulation of the stablecoin bill provides issuers with the option of applying for a federal license or obtaining a license at the state level. The Senate and the House of Representatives have proposed different versions of the stablecoin bill, which have been revised repeatedly for many years but have not yet reached a final consensus.

The stablecoin bill drafted by Republican Patrick McHenry, the current majority party in the House of Representatives, was passed by the House Financial Services Committee, but it still faces challenges in passing the full House of Representatives. Democratic Representative Maxine Waters discussed the content of the bill for 22 months. The two lawmakers, representing the Republican and Democratic parties respectively, are committed to seeking the well-being of the American people despite their age.

The turmoil in the stablecoin market, such as the USDT problem, has attracted the attention of both parties in the United States, who have realized the urgent need to formulate a stablecoin bill. USDC, as a stablecoin, has a market value of nearly $34 billion, but it is not clear which agency should regulate it. Circle, as the issuer of USDC, expressed a positive attitude towards regulation. The CEO emphasized the importance of clear regulatory rules and hoped that Circle could be regulated like a bank to avoid depositing funds in other banks. Like when Silicon Valley Bank went bankrupt last year, Circle's $3.3 billion uninsured deposits in the bank were frozen. This deposit, as collateral for cryptocurrencies, caused great panic among the public, causing USDC to fall to around $0.8905, and the 24-hour decline widened to 9.63%.

Circle's CEO actively promoted the introduction of a regulatory bill in Congress, emphasizing USDC's full margin system. Compared with the fractional reserve system of commercial banks, USDC can provide full margin, 100% redemption of US dollars, and is not afraid of bank runs. Although some members of Congress are averse to blockchain and cryptocurrencies, USDC's potential role in maintaining the global hegemony of the US dollar is a strong argument. In addition, Treasury Secretary Yellen also emphasized the urgency of the stablecoin regulatory bill. McHenry and Waters need to reach an agreement on the content of the bill so that the bill can be passed by the full House of Representatives and submitted to the Senate for a vote.

In the Senate, Banking Committee Chairman Sherrod Brown and Majority Leader Chuck Schumer are key figures. Although Brown has reservations about Bitcoin, he is relatively open to stablecoins. After Maxine Waters and McHenry's discussion with Schumer, Maxine Waters said that both sides are working hard and hope to pass the stablecoin bill in the short term.

The House bill is relatively short and gives state governments greater power, while the Senate bill is more detailed and balances the power of state governments and the Federal Reserve. The Senate bill not only clarifies who can issue stablecoins anchored to the US dollar, but also involves how to deal with the merger or bankruptcy of the issuer. The bill proposes that if the issuer of the stablecoin goes bankrupt, the Federal Deposit Insurance Corporation (FDIC) should take over to protect the interests of depositors. The draft also encourages multiple institutions, including banks, to participate in the issuance of stablecoins. For stablecoins with an issuance volume of less than US$1 billion, the supervision will not be as strict as that of banks. For stablecoins with an issuance volume of more than US$1 billion, the bill requires the same strict supervision as banks.

In addition:

• The new bill stipulates that not only traditional banks can issue stablecoins, but non-bank trust companies are also allowed to issue them. This means that traditional banks do not have to enter this market, and technology companies like Ripple can also issue their own stablecoins through their subsidiaries.

• Regulatory measures: The bill introduces a series of important regulatory measures to ensure market stability and consumer safety. For example, for algorithmic stablecoins that do not have sufficient funds or assets to support them, the bill sets strict restrictions in order to avoid market manipulation and collapses like LUNA.

• Capital and reserve requirements: The bill also stipulates that companies issuing stablecoins must meet specific capital and reserve requirements. Such regulations can ensure that these companies have sufficient funds to maintain the stable value of the stablecoins they issue when the market is turbulent.

Such regulations are intended to promote healthy competition, so that different issuers compete with each other in the market, and eventually form several major players to compete with USDT, preventing USDT from occupying most of the market share in the long term.

Both drafts are exclusive of USDT, especially the Senate draft, which explicitly prohibits US companies from holding or using USDT. USDT currently avoids the US market to circumvent US regulation.And the implementation of the new regulations is relatively favorable to PY USD and USDC.The reason why the legislators sat together to discuss is not because they are keen on blockchain technology, but because they are unwilling to see USDT dominate the market. According to data compiled by Visa Inc., Circle Internet Financial's stablecoin has surpassed Tether in terms of trading volume this year. Data shows that since the beginning of 2024, Circle's USDC has been grabbing market share, with trading volume reaching $456 billion last week, while Tether's USDT trading volume was $89 billion. Since January, USDC has also accounted for 50% of total trading volume.

From another perspective, the bill provides a huge opportunity for non-bank institutions such as Ripple. They can use their expertise in blockchain technology to issue and manage stablecoins through compliant subsidiaries to expand their business scope and market influence. Ripple did not rush to launch its own stablecoin like other companies, but chose to wait and see what the law stipulates. This is actually a very smart strategy because it can avoid trouble in the future due to legal issues.

The introduction of stablecoins means that we may see more fast and cheap transaction methods, especially for cross-border payments and small payments, such as if you want to pay a few cents online to read articles or videos, or trade and commodity arbitrage, which are very good media. Secondly, stablecoins will be a good way to penetrate areas without bank accounts, which is also welcomed by both the House and Senate. The bill of the House of Representatives is still being revised in order to merge with the Senate's draft. Cynthia Lummis, one of the drafters of the Senate's stablecoin bill, said that they are waiting for the House of Representatives to complete the revision so that the two drafts can be merged, and hope to complete the process before the 2024 election.

As a legislative body, Congress has given regulators such as the SEC, FDIC and the Federal Reserve powers and dictated how they operate. All of these agencies must follow the laws enacted by Congress. As the legislative process progresses, the United States may take an important step in cryptocurrency regulation, providing the market with clearer guidance and stronger investor protection. Looking forward to the early introduction of the stablecoin bill, Aiying will continue to pay attention to the compliance policy dynamics in the field of stablecoins and encrypted payments, and welcome open exchanges.