As the Congressional stablecoin legislation progresses, it has sparked a mix of reactions from different sectors. The 179-page bill, introduced by Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY), aims to regulate and clarify aspects of fiat-backed coins. While the crypto industry applauds the move, traditional finance voices concerns.

The bill prohibits algorithmic stablecoins, those not fully backed by fiat reserves, and establishes a framework for FDIC conservatorship in case of insolvency. However, Hilary Allen, an associate professor at American University’s Washington College of Law, expresses apprehension about the legislation.

Allen warns that passing such bills could lead to disastrous consequences. She believes stablecoins lack the robustness required for widespread use as a payment method, citing issues with blockchain reliability and throughput. Moreover, she raises concerns about the potential increase in banking fees for US consumers due to the FDIC receivership provision.

Stablecoins, a type of cryptocurrency pegged to other assets, play a crucial role in crypto markets by offering a less volatile option for trading and wealth storage. However, Allen criticizes the bill’s proposal to provide FDIC receivership to stablecoins without requiring deposit insurance premiums, pointing out the risks associated with stablecoin reserves that include repurchase agreements.

While the bill aims to enhance regulation and stability in the crypto space, Allen emphasizes the need to address the potential pitfalls and unintended consequences that could arise from the proposed measures.