The US stablecoin market is about to get a major boost, according to a recent report by S&P Global. The Lummis-Gillibrand Payment Stablecoin Act, if passed, could usher in a new era of stablecoin adoption thanks to a clearer regulatory framework.

Regulatory Clarity: Banks Dive into Stablecoins

The proposed act offers a much-needed roadmap for stablecoin regulation. This clarity is expected to entice banks into the market, potentially offering them a competitive edge.

Here's how:

Limited Issuance for Non-Banks: The bill proposes a $10 billion issuance cap for institutions without a banking license. This could give banks a significant advantage.

Minimal Impact on Existing Players: Existing NYDFS-regulated stablecoins (like PayPal USD, Gemini USD, and Paxos USD) are likely to see minimal impact as they already adhere to strict guidelines.

Tether's Dominance Under Threat?

The act could also reshape the stablecoin landscape, potentially challenging Tether's (USDT) dominance.

US Issuance Requirement: Tether, being issued by a non-US entity, wouldn't qualify as a "permitted payment stablecoin" under the bill. This could restrict US entities from holding or transacting with Tether, potentially dampening demand.

Focus on Emerging Markets: It's important to note that Tether's activity is concentrated outside the US, particularly in emerging markets, where retail users and remittances drive demand.

Rise of Stablecoin Custody Services?

Another potential outcome is the emergence of more stablecoin custody services. The proposed act removes a key barrier – the SEC's requirement for custodians to report digital assets on their balance sheet.

This change could:

Reduce Capital Requirements: Eliminating the balance sheet reporting requirement could free up capital for financial institutions, making them more likely to offer digital asset custody services.

Increased Competition: More players entering the market could lead to greater competition and potentially better rates and services for users.

The Future of Stablecoins in the US

The Lummis-Gillibrand Act represents a significant step towards a more robust and transparent US stablecoin market. With clearer regulations and increased competition, stablecoin adoption is likely to soar, potentially paving the way for wider cryptocurrency acceptance and innovation.