Stablecoin Regulation Could Impact Tether's Dominance? S&P Rating: Banks to Emerge as Biggest Winners

U.S. Republican Senator Cynthia Lummis and Democratic Senator Kirsten Gillibrand introduced the latest stablecoin bill in mid-April. S&P Global Ratings believes that if the bill is passed, it will lead to Tether's exit from the market.

Banks Enter the Scene, Tether Makes an Exit

S&P Global Ratings pointed out that the passage of the stablecoin bill will accelerate innovation by traditional financial institutions on the blockchain, especially concerning tokenization of on-chain payments or issuance of digital bonds. With the increasing adoption of stablecoins by institutions, it will pave the way for banks to become stablecoin issuers and weaken Tether's dominant position.

S&P stated:

If the new bill is passed, stablecoin issuers without a banking license will have their issuance capped at $10 billion, giving banks a competitive advantage. Additionally, as Tether is not a U.S.-based entity, it implies that U.S. entities will not be able to hold or trade USDT.

However, S&P also found that Tether's trading activities mainly occur in emerging markets outside the U.S., driven by retail traders and cross-border remittances.

Earlier, analysts at JPMorgan also expressed a similar view:

JPMorgan: Stablecoin Bill to be Enacted, U.S. Can Sanction Offshore Entities, Tether Faces Challenges

Stablecoin Bill Faces Challenges

U.S. Senators Cynthia Lummis (Republican) and Kirsten Gillibrand (Democrat) introduced a new joint bill in mid-April that could establish a regulatory framework for stablecoin issuers at state and federal levels, and completely ban algorithmic stablecoins.

Nikhilesh De, CoinDesk's Managing Editor for Global Policy and Regulation, is not optimistic about the bill being smoothly passed and raised several concerns:

• This will not prevent bad actors from adopting foreign stablecoins.

• DAI is not an algorithmic stablecoin, and the bill does not provide clear guidance on this.

• The U.S. will soon enter election mode in the second half of the year, where officials and lawmakers may pay even less attention to crypto bills.

• The issuance cap of $10 billion will render Circle unable to operate unless it becomes a chartered deposit-taking institution at the state or federal level.

Tether has not responded to requests for comment from CoinDesk and The Block.

Furthermore, it has been almost two years since the two senators introduced the "draft," with no significant progress made.

Both parties jointly support the crypto bill, industry insiders hail a new milestone, while financial reform groups criticize it. What are the highlights?