Senator Kirsten Gillibrand (D-N.Y.), a prominent advocate for cryptocurrency legislation within the Democratic Party, cautioned the sector against opting for a “weaker” version of the long-anticipated stablecoin legislation currently being discussed in the Senate. She emphasized that robust regulations are essential for fostering innovation and safeguarding investors from bank runs similar to the one that occurred with Silicon Valley Bank in 2023, as well as the collapse of the FTX crypto exchange in 2022.
During her address at the D.C. Blockchain Summit in Washington, D.C. on Wednesday, Gillibrand highlighted that the bipartisan stablecoin bill — officially named the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) — incorporates numerous safeguards for consumers in situations where an issuer goes bankrupt.
“You must consider every potential failure point. A seemingly straightforward question like how we define a dollar — is a Treasury bill equivalent to a dollar? What happens if your dollar-to-dollar backing is entirely in Treasuries and an interest rate misalignment occurs, as seen with SVB, leading to a run on your stablecoin while your dollar backing is locked in a three-month Treasury? That would cause a collapse,” Gillibrand explained.
If the requirements for dollar backing are not strictly upheld, she warned: “You’re inviting the risk of another FTX incident. You would end up with another algorithmic stablecoin that fails because it was fundamentally flawed. That poses a significant threat to the U.S. market.”
“The worst outcome would be to dilute the bill’s strength,” Gillibrand stated. “Do not assume that a diluted version of this legislation will benefit your industry. It will ultimately harm it. Just one more SVB-like situation or the failure of another algorithmic stablecoin would perpetuate so much uncertainty that businesses will shy away from operating in the United States.”
After several years of delays, it seems that stablecoin legislation is finally picking up steam. Earlier this month, the U.S. Senate Banking Committee voted to move the GENIUS Act forward for a wider Senate vote. A companion bill from the U.S. House of Representatives is expected to be unveiled on Wednesday.
Read more: U.S. House Stablecoin Bill Poised to Go Public Lawmaker Atop Crypto Panel Says
Gillibrand noted that if Congress succeeds in enacting the GENIUS Act, advancing other regulatory frameworks for market structure will become more feasible.
“A market structure bill involves more complexity. It governs the entire industry rather than just one type of digital asset,” Gillibrand mentioned. “Therefore, it’s imperative that we get this right so we can progress to more extensive legislation that commands a broader consensus.”
A market structure bill would establish a regulatory framework for the entire cryptocurrency industry, providing clarity for crypto companies and digital asset issuers regarding the classification of their tokens and identifying their primary regulatory authority.
During the same panel discussion, Senator Bernie Moreno (R-Ohio) asserted that any digital asset with a centralized issuer should be categorized as a security rather than a commodity.
“If your digital currency has a CEO, it cannot be classified as a commodity, by definition,” Moreno remarked.
In another panel at the same event, Senator Tim Scott (R-S.C.) stated that the forthcoming market structure bill needs to “create a framework that extends beyond just the two primary classifications” of security versus commodity.
Moreno expressed his desire to see the GENIUS Act passed before the August recess.
“I’m issuing a challenge — let’s accomplish this by the August break, what do you think? Market structure, GENIUS Act, [Strategic Bitcoin Reserve], all wrapped up by then,” Moreno urged.
Gillibrand moderated expectations, informing Moreno that finalizing a market structure bill by August is unlikely but reassured him that Congress is “definitely planning to address stablecoins” before the summer recess — and possibly even before the Easter break in April, she suggested, “if we are truly productive.”