Stablecoin hopes tumble as Senate coalition shatters

by Steven T. Dennis

A bipartisan alliance backing stablecoin legislation shattered in the US Senate as a key group of Democrats threatened to block a bill that Republicans had hoped to pass this month — unless “numerous” fixes are made.

Senator Ruben Gallego of Arizona, a crypto-friendly freshman who backed the bipartisan measure regulating dollar-pegged cryptocurrencies in the Banking Committee, led a statement Saturday from nine Democrats in the chamber warning that they would filibuster the bill.

“The 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,” the senators said.

The crypto industry had been on a roll in Donald Trump’s Washington, with the president scaling back enforcement actions against crypto companies, appointing crypto-friendly regulators, and a bipartisan crypto-friendly coalition on Capitol Hill racing to put in place a regulatory framework long sought by the industry. Trump has even launched his own memecoin.

Several US companies and banks are considering jumping in to stablecoins should the nation adopt a friendly federal regulatory regime. The current bill would require dollar-pegged stablecoins to be backed by assets such as short-term government debt and similar securities overseen by federal or state regulators.

Top House Republicans released a discussion draft Monday of legislation to govern the broader cryptocurrency market, including setting rules for when crypto products will be regulated by the Securities and Exchange Commission and when they will be governed by the Commodity Futures Trading Commission. Crypto companies have long sought favorable regulation and chafed under lawsuits and enforcement actions from the SEC in particular.

Financial Services Committee Chairman French Hill, whose committee has already sent its own stablecoin bill to the full House for consideration, said the market structure legislation is intended to keep America “the crypto capital of the world.”

Negotiation Offer

Gallego and the other Democrats said they were eager to continue negotiations on the legislation in hopes of crafting a version they can support.

“We recognize that the absence of regulation leaves consumers unprotected and vulnerable to predatory practices,” they wrote.

Republican Senator Bill Hagerty of Tennessee, the lead sponsor of the bill, posted on X that there is now a choice for the Senate. “Move forward and make any remaining changes needed in a bipartisan way, or show that digital asset and crypto legislation remains a solely Republican issue,” he said.

Without reaching a deal with Gallego’s camp, which includes several members who backed an earlier draft in committee, the legislation would face a tough path to passage. Sixty votes are required to overcome a filibuster, so Republicans would need at least seven Democratic supporters.

Top Democrats including Elizabeth Warren of Massachusetts have charged that the bill fails to adequately protect consumers, opens the door for technology companies, Trump and Elon Musk to launch and profit off of their own coins, and would lead to demands for costly government bailouts if they fail.

Senate Majority Leader John Thune told reporters Monday he still expected to hold a test vote on advancing the bill this week, and assailed the Democrats for balking at the latest version, which he said was crafted with significant input from Democrats including Senator Kirsten Gillibrand of New York.

“I think this is Elizabeth Warren running their caucus,” Thune said. “Everybody’s right now afraid of being for anything, but if we can’t do this bipartisan, I don’t know what we can do.”

Senator Chuck Schumer, the Democratic leader, said in a brief interview that both parties were still talking to each other about the bill. Schumer has been under pressure from the left flank of his party after he voted to end a filibuster of a Republican spending package earlier this year.

Backers, including some retailers, see stablecoins as a potential boon — providing a lower-cost alternative to existing payment systems like credit cards and checks.

Senators in both parties are also working on their own version of a broader market structure bill, but that could stall too if the dispute over the stablecoin legislation isn’t resolved.

Copyright Bloomberg News