Stablecoin legislation is set to advance in the Senate Banking Committee this week with a Thursday vote on updated legislation announced by a bipartisan group of senators.
Senate Banking Chair Tim Scott, R-S.C., announced the new proposal late Monday. He said the bill was negotiated with stakeholders in the industry and "will protect consumers and expand financial inclusion for Americans across the country."
Kirsten Gillibrand, the top Democratic sponsor from New York, said the revised version improves "risk mitigation, state pathways, insolvency, transparency and more."
Legislation regulating dollar-backed stablecoins is gaining support in Congress after President Donald Trump threw his political weight into the effort.
Trump praised efforts to provide regulatory certainty for stablecoins at last week's White House crypto summit, and Treasury Secretary Scott Bessent said stablecoins would help ensure the "dominance" of the U.S. dollar globally.
Stablecoin legislation is also a priority for the House Financial Services Committee, which held a hearing Tuesday where financial executives planned to promote dollar-backed stablecoins as a way to lower transaction costs for U.S. consumers and businesses.
"A blockchain-based dollar can be transferred instantaneously, at virtually no cost, and held by anyone with simply an internet connection and smartphone," Charles Cascarilla, chief executive officer of stablecoin issuer Paxos Inc., said in prepared testimony released in advance.
Cascarilla assailed the current bank-based financial system as amounting to a "regressive tax" laden with "ATM charges, overdraft penalties and wire transfer costs that disproportionately burden working families."
Backers view stablecoins as disruptors of existing payment systems and claim that the tokens allow faster and cheaper transactions. But the tokens lack the guardrails of traditional banking -- like FDIC insurance -- and customers could be left in the lurch if a stablecoin fails. The US government could then face demands for a costly taxpayer bailout.
The fast-growing industry already processes billions of dollars a day in transactions, and an assortment of fintech companies and banks are either launching new tokens or are considering doing so.
While U.S. consumers typically use credit cards and debit cards to pay for retail goods, data compiled by Cathie Wood's ARK Invest show global stablecoin transaction volumes topped $15 trillion in 2024.
Dollar-based stablecoins bolster demand for U.S. dollars and debt because they are intended to be backed at least one-to-one with dollar-based assets, like short-term government debt.
Legislation under consideration in the House and Senate would put issuers of stablecoins under the eyes of federal or state regulators to ensure they have enough dollars and liquidity, while complying with rules like those targeting money laundering.
Cascarilla was scheduled to join financial executives including Stripe CEO Patrick Collison and Caroline Butler, the head of digital assets at The Bank of New York Mellon Corp., at a House Financial Services Committee hearing Tuesday on stablecoin legislation.
Dollar-backed stablecoins distributed by the biggest issuers Tether and Circle are already used in billions of dollars of transactions a day, though traditional credit and debit cards dominate retail transactions.
The specifics of the legislation are hard fought because they can advantage -- or disadvantage -- key players, with billions in profits at stake. One fight includes whether to require U.S. registration of stablecoin issuers, which could hurt El Salvador-based Tether and benefit its U.S.-based rival, Circle.
Banks also face competition from the companies looking to take a big chunk of their business, with the potential for stablecoins to siphon off deposits and transaction fees.
The lack of a backstop, especially if stablecoins grow large enough to become systemically important, has also been a concern. A central bank digital currency issued by the Federal Reserve would likely be safer, but that would threaten the business model of private coin issuers. The industry and their backers in Congress want to ban the Fed from issuing one.
Several bills have been circulated for discussion, including a draft released last month by House Financial Services Committee Chairman French Hill, R-Ark., and a draft released by Maxine Waters, the top Democrat on the committee from California, reflecting legislation her staff had worked on with the staff of previous Chair Patrick McHenry.
Information for this article was contributed by Stacy-Marie Ishmael of Bloomberg.