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A new bill co-sponsored by Senators Cynthia Lummis and Kirsten Gillibrand, aimed at regulating stablecoins, has drawn criticism for potentially stifling innovation and breaching First Amendment rights. The bill includes a provision that bans all “algorithmic payment stablecoins,” which could have significant implications for software developers and the broader tech community.
According to Jerry Brito, the founder of Coin Center, a policy advocacy group for cryptocurrencies, the co-sponsored bill aims to establish a regulatory framework but introduces provisions that are both unnecessary and potentially unconstitutional. The suggested prohibition of algorithmic stablecoins such as Terra, which depend on a sister token for collateral, is viewed as an excessive step that may impede the progress of decentralized financial technologies. Brito contends that any product that adheres to current securities regulations should be permitted to enter the market without further obstacles.
“Doing so would be not just bad policy but unconstitutional as well,” Brito states.
The debate centers around the nature of algorithmic stablecoins, which, unlike traditional financial products, operate in a fully decentralized manner without central issuers or promoters. Coin Center, which typically does not engage in stablecoin-related policy, has taken a strong stance against this bill due to its implications for free speech. “Banning people from publishing code and algorithms is a clear prior restraint on protected speech and is unconstitutional unless the government can show a compelling interest and narrow tailoring,” stated Brito.
Furthermore, Brito emphasizes the contrast between the Lummis-Gillibrand bill and other legislative efforts, such as the Clarity for Payment Stablecoins Act introduced in the House last year. While the House bill proposed a two-year moratorium on new endogenously collateralized stablecoins like Terra to allow for further study, it did not include a permanent ban, thus offering a more reasonable approach to regulation.
Coin Center hopes that Senators Lummis and Gillibrand will reconsider their current stance and adopt a more tailored approach that protects innovation while ensuring compliance with securities laws. The ongoing dialogue with lawmakers reflects the complex challenges at the intersection of technology, law, and civil liberties in the evolving digital currency landscape.
