Revolutionary Stablecoin Legislation By Lummis-Gillibrand Set To Ignite Growth & Acquisitions In The Industry, Predicts TD Cowen

• According to a Monday note from TD Cowen, a bill proposed by Senators Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.) could be advantageous for stablecoin issuers.
• While stablecoin legislation has a potential path forward, the investment bank noted that there are “significant hurdles” to overcome, including the need to attach it to a broader legislative package.
• TD Cowen mentioned that stablecoin legislation might also spur mergers and acquisitions (M&A).

An investment bank, TD Cowen, indicated in a recent note that a newly introduced bill in the Senate could benefit stablecoin issuers.

The Lummis-Gillibrand Payment Stablecoin Act, introduced last week by Senators Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-Wyo.), aims to establish “clear rules of the road” for stablecoin issuers, according to the note released on Monday.

“Lummis-Gillibrand, in our view, would be positive for stable coin issuers as it would establish clear rules of the road. It also would be symbolically significant for crypto in general as it would be the first constructive crypto legislation from Congress,” said the TD Cowen Washington Research Group, led by Jaret Seiberg.

The proposed bill mandates that stablecoin issuers maintain one-to-one cash or cash-equivalent reserves to back their tokens. It also prohibits algorithmic stablecoins and stipulates that stablecoins cannot be used for illicit or unauthorized purposes, such as money laundering.

The bill grants both federal and state agencies authority in chartering stablecoin issuers and enforcement of the new regulations.

Senators Lummis and Gillibrand noted that they collaborated with the Federal Reserve, the Treasury Department, and state financial regulators from Wyoming and New York for technical guidance while drafting the bill. Although TD Cowen mentioned that the Biden administration might support the bill, they cautioned that it still faces “significant hurdles,” including maintaining White House support and integrating the bill into a broader legislative package.

TD Cowen added that stablecoin legislation could also ignite mergers and acquisitions (M&A).

“If this approach is adopted, we believe it could lead to mergers between banks and stable coin issuers as issuers will want the advantages of being a bank and a bank looking to play a role in stable coins will want the user base of an existing issuer,” the group said in its note.

Discussions Underway Among House Members

House Financial Services Chair Patrick McHenry (R-N.C.) and ranking Democrat Maxine Waters (D-Calif.) are collaborating on a regulatory framework for stablecoins. However, industry sources report that discussions about who should be the primary regulator for stablecoin issuers have reached a stalemate.

TD Cowen mentioned that a possible compromise between the two could resemble the proposed Senate bill.

“We still believe the still-being-negotiated deal between House Financial Services Chair Patrick McHenry and Rep. Maxine Waters will be the base text for the eventual bill. Lummis-Gillibrand, however, still matters as it offers insight into what we can expect from McHenry and Waters,” TD Cowen said in its note.

In the Senate, Sen. Sherrod Brown (D-Ohio) plays a crucial role in the potential passage of a stablecoin bill. As the chair of the Senate Banking Committee, he indicated to Bloomberg last week that he is open to advancing stablecoin legislation as part of a broader package, which could also include a bill permitting banks to work with marijuana businesses and other related measures.

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