Stablecoin Regulation – DEMS Withdraw Support!

Bipartisan stablecoin regulation collapses as nine Senate Democrats withdraw support from the GENIUS Act over security concerns, threatening the future of crypto oversight legislation.

At a Glance

  • Nine Senate Democrats have withdrawn their support for the GENIUS Act, citing inadequate protections against money laundering and national security risks
  • The bill, sponsored by Republican Senator Bill Hagerty, requires Democratic votes to reach the 60-vote threshold needed to avoid filibuster
  • Democrat opposition coincides with Trump family ventures into cryptocurrency, including the launch of a new stablecoin called “USD1”
  • Senate Majority Leader John Thune still plans to bring the bill to a vote despite waning Democrat support

Democrat Support Crumbles for Stablecoin Regulation

A major bipartisan effort to regulate stablecoins hit a significant roadblock on May 3 when nine Senate Democrats announced they would no longer support the GENIUS Act. The bill, which aims to create a comprehensive federal regulatory framework for stablecoins, had previously enjoyed support from both sides of the aisle but now faces an uncertain future. Stablecoins are cryptocurrencies designed to maintain stable value by pegging to assets like the U.S. dollar, making them less volatile than Bitcoin and other digital currencies.

Senator Bill Hagerty (R-Tenn.), the bill’s sponsor, expressed frustration at the sudden withdrawal of Democratic support. The legislation had previously passed the Senate Banking Committee with an 18-6 vote, including support from five Democrats. However, the bill now lacks the necessary Democratic votes to reach the 60-vote threshold required to overcome a potential filibuster, as Republicans hold only 53 seats in the Senate.

Security Concerns Cited as Primary Reason for Withdrawal

Democrats who withdrew their support pointed to specific deficiencies in the bill’s security provisions. Senator Ruben Gallego (D-Ariz.) highlighted several areas requiring improvement, stating the current version falls short on crucial protective measures.

“[T]he bill as it currently stands still has numerous issues that must be addressed, including adding stronger provisions on anti-money laundering, foreign issuers, national security, preserving the safety and soundness of our financial system, and accountability for those who don’t meet the act’s requirements”, said Sen. Ruben Gallego (D-Ariz.).

Senate Minority Leader Chuck Schumer has advised Democratic Senators to withhold commitment to the bill, allowing time for potential amendments that could address these concerns. Despite this setback, Senator Kirsten Gillibrand continues to support the legislation, providing at least one Democratic vote. However, the bill remains far short of the required 60 votes needed for cloture to prevent endless debate and move forward to a final vote.

Trump Family Crypto Ventures Complicate Legislation

The timing of the Democrats’ withdrawal coincides with recent cryptocurrency ventures by members of the Trump family. Donald Trump Jr. and Eric Trump recently launched “USD1,” a stablecoin through Trump-backed World Liberty Financial. This connection has raised concerns among lawmakers from both parties, particularly due to a reported $2 billion investment in the Binance crypto exchange by Abu Dhabi’s MGX, which has government affiliations.

“This is corruption and no senator should support it.”, Democrat Senator Warren said.

Even some Republican lawmakers have expressed reservations about these developments. Senator Cynthia Lummis, a Trump supporter, acknowledged concerns while discussing the situation, saying: “This is my President that we’re talking about, but I am willing to say that this gives me pause.” This rare bipartisan skepticism further complicates efforts to advance the legislation.

Future of Stablecoin Regulation Remains Uncertain

Senator Hagerty has defended the GENIUS Act as essential for providing regulatory clarity and maintaining American leadership in financial innovation. The bill proposes a framework including licensing requirements, defines boundaries between state and federal regulation, and establishes reserve requirements for stablecoin issuers.

“The GENIUS Act establishes a clear, pro-growth, and secure regulatory framework to modernize our payments system and cement U.S. dollar dominance”, said Sen. Bill Hagerty (R-Tenn.).

Despite the current impasse, Senate Majority Leader John Thune still plans to bring the bill to a vote before the full Senate. However, the initial optimism for achieving regulatory clarity on stablecoins has significantly diminished. The cryptocurrency market has responded to this uncertainty with Bitcoin prices falling at the beginning of the week. Without substantial revisions to address Democrat concerns, the GENIUS Act appears unlikely to advance, prolonging regulatory uncertainty for the cryptocurrency industry.

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