S&P Foresees Stronger Stablecoin Adoption Under Clear Rules

The US is moving closer to a long-awaited stablecoin regulatory framework. Lawmakers are refining key proposals to bring clarity to the fast-growing digital asset market.

Stablecoin market capitalization has jumped to $230b from $160b in just six months. This rapid growth has intensified the need for clear rules, according to an S&P Global Ratings report on Wednesday.

The lack of a unified regulatory framework has slowed institutional adoption. As a result, the US is falling behind other jurisdictions. The EU, for example, implemented its Markets in Crypto-Assets (MiCA) regulation in mid-2024.

Issuers Face Strict Rules Under Proposed US Laws

Three legislative proposals have emerged as front-runners in shaping the future of US stablecoin regulation:

• The Clarity for Payment Stablecoins Act, championed by Representative Patrick McHenry, focuses on state-led oversight with minimal federal intervention. The bill allows non-bank financial entities to issue stablecoins. It also requires issuers to maintain adequate reserves and ensure transparency.
• The Lummis-Gillibrand Payment Stablecoin Act, introduced in the Senate, takes a more stringent approach. It requires stablecoins to be fully backed by liquid assets. It also bans algorithmic stablecoins.
• The GENIUS Act, backed by Senators Tim Scott, Bill Hagerty, Cynthia Lummis and Kirsten Gillibrand, aligns closely with the Trump administration’s pro-crypto stance. The bill creates a dual state-federal oversight model. It also aims to strengthen the US dollar’s dominance in global digital finance.

US H.R.4766 – Clarity for Payment Stablecoins Act is the most pivotal white swan in crypto adoption. It passed 34-16 and moves to a House this session.

If this Act passes then stable coins backed by US Treasuries become legal tender in the US.

More to come as I follow this… pic.twitter.com/mA7KK9K0vQ

— MartyParty (@martypartymusic) January 15, 2024

The details of each proposal vary. However, all three impose strict reserve requirements. They mandate that high-quality assets must back stablecoins. These include cash, short-term Treasury securities, or central bank reserves.

Issuers must also disclose redemption policies and undergo third-party audits to ensure transparency and consumer protection, as shown in S&P Global’s latest report.

S&P Sees Stablecoin Adoption Lagging Without a Defined Legal Framework

According to S&P, the absence of a robust regulatory framework has long been a barrier to stablecoin adoption in traditional finance. While stablecoins are widely used for cross-border payments, institutional investors remain cautious due to regulatory uncertainty.

A formal legal structure could open the door to stablecoin integration into digital bond issuances, tokenized money market funds, and mainstream financial transactions, S&P said.

Moreover, the US faces growing competition in digital finance. The EU’s MiCA framework has already set clear standards for stablecoin issuers, giving European financial institutions a head start in adopting regulated digital assets. Without swift action, US-based stablecoin issuers risk falling behind, potentially ceding market leadership to international rivals.

Lawmakers Debate Federal Role

S&P said one contentious issue is the role of federal oversight. Some proposals, like the Clarity for Payment Stablecoins Act, emphasize state-level regulation, allowing smaller issuers to operate with limited federal intervention.

Others, such as the GENIUS Act, require larger issuers—those exceeding $10b in market cap—to fall under the purview of the Federal Reserve or the Office of the Comptroller of the Currency (OCC). Meanwhile, ongoing discussions on algorithmic stablecoins have led to a proposed two-year moratorium on their issuance, reflecting concerns over systemic risks.

Looking ahead, lawmakers are weighing feedback from financial regulators, industry leaders and consumer advocacy groups. The coming months will be critical in determining whether Congress can reach a bipartisan agreement that balances innovation with financial stability. If successful, the US could soon see a wave of institutional adoption, bridging the gap between traditional finance and decentralized digital assets.

For now, the stablecoin industry awaits its defining moment—one that could reshape the digital currency landscape for years to come.

Source: cryptonews.com