Stablecoin Regulation: Legal Veteran Kicks Against Lummis-Backed Bill

There is contention that the new stablecoin regulation Bill, co-sponsored by Senators Cynthia Lummis and Kirsten Gillibrand may contribute significantly to stifling innovation in the United States.

The Now Popular Stablecoin Regulation Bill

Lummis and Gillibrand introduced the 179-page bill last week with a focus on legitimizing and clarifying different parts of these cryptocurrencies that are pegged to a fiat. 

In addition, the proposed bill has no tolerance towards so-called algorithmic stablecoins that aren’t backed by full fiat reserves. This has a significant implication for software developers and the broader tech community.

Amongst all other focuses of the bill, it supports the use of a mechanism for FDIC conservatorship and resolution if an issuer becomes insolvent. The Congressional stablecoin legislation sparked excitement within the crypto sector but the same cannot be said for the traditional finance ecosystem. 

Hilary Allen, an associate professor at American University’s Washington College of Law, appears to be worried about the content of the bill. Notably, Allen is someone who has written and spoken extensively about how various crypto products can undercut the stability of the financial system.

With the new development of the stablecoin bill waiting to be passed, he believes it is a case of a “huge disaster” waiting to happen.

Backlash and Support Trails Stablecoin Bill

Allen does not think that stablecoins qualify to be regarded as a form of payment. For context, he clearly said that the blockchain that underlies these stablecoins isn’t reliable nor does it have enough throughput.

The professor was quick to point out that the FDIC receivership aspect of the Lummis-backed stablecoin bill could cause a major ramp-up of banking fees for all U.S. consumers. 

Besides this subtle antagonism to the bill, there are also supportive talks that the bill breaches First Amendment rights, especially with its prohibition of algorithmic stablecoins. Crypto advocacy group Coin Center challenged the Lummis-Gillibrand Act, citing First Amendment concerns over the stablecoin regulation.

The CEO of the crypto advocacy group Jerry Brito, applauded the government’s commitment to regulating stablecoin in the region. Generally, many of the efforts pushed into the crypto industry became more intense after the collapse of Terraform Labs in 2022.