US Congressional Initiatives Could Undermine Tether’s Dominance, Says S&P

A bill introduced in Congress regarding payment stablecoins could undermine Tether’s dominance, according to Standard & Poor’s, reports The Block.

The document prohibits unsecured algorithmic “stablecoins” and introduces anti-money laundering mechanisms.

The bill requires issuing firms to establish reserves of cash and equivalents in a one-to-one ratio to back the tokens.

Experts believe its adoption “should encourage banks to enter the stablecoin market.”

“Approval will accelerate institutional blockchain innovations, particularly tokenization. […] The increase in TradFi stablecoin use cases will create opportunities for banks as issuers of such assets and may reduce Tether’s dominance,” the report states.

If the new law is passed, it will give institutions a competitive advantage by limiting unlicensed companies to a maximum issuance volume of $10 billion, S&P Global noted.

USDT may face a weakening of its position since its issuer is a non-American company and its circulation in the United States will be prohibited.

“American legal entities will not be able to hold Tether or conduct transactions with it. This could reduce demand for the asset and contribute to the growth of American stablecoin issuance. In our observations, USDT transactions are primarily conducted outside the US, in emerging markets, driven by retail users and remittances,” experts explained.

In April, the total capitalization of stablecoins pegged to the US dollar increased to $165.2 billion, a level last seen in June 2022.

Earlier, Bernstein analysts predicted the market value of stablecoins would grow to $2.8 trillion in the next five years.