According to a report from The Block, two US senators—Kirsten Gillibrand and Cynthia Lummis—have released a new bill that focuses on oversight of stablecoins. The proposal comes after Gillibrand said at the Bitcoin Policy Summit last week that new stablecoin legislation was on the way.

The bill comes as global authorities are actively working to regulate stablecoins and ensure their safety, legality and practicality in the financial system.

The Lummis-Gillibrand Payment Stablecoin Act aims to create a clear and comprehensive legal framework for stablecoins and strike a balance between consumer protection and innovation.

The bill requires stablecoin issuers to maintain one-to-one reserves of cash or cash equivalents to back their tokens. Additionally, to prevent potential market manipulation or financial instability, stablecoins that are not backed by reserves will be prohibited.

The bill's primary focus is user security and seeks to integrate stablecoin issuers into the existing dual banking system of the United States, where both federal and state authorities have regulatory authority. This will allow federal and state regulators to properly monitor stablecoin activities.

Another important point is the policy to protect users in the event of issuer insolvency. The bill introduces measures regarding what happens if a stablecoin issuer becomes insolvent. It includes provisions for the Federal Deposit Insurance Corporation's (FDIC) conservation and authorization processes to protect consumers and maintain stability in the financial system.

Following the collapse of the stablecoin TerraUSD (UST) and its sister token LUNA, global policymakers have focused attention on the legal framework of the stablecoin.

The UK recently announced plans to introduce new legislation on cryptocurrencies and stablecoins in July. According to UK Economy Minister Bim Afolami, the government will soon introduce legislation on stablecoins, as well as on the placement, trading and storage of cryptocurrencies.

Last year, the UK passed the Financial Markets Act, which included provisions to regulate cryptocurrencies. Following this, the UK's Financial Conduct Authority (FCA) set out requirements for the promotion of cryptocurrencies, with four main forms receiving the agency's approval. In February 2023, government agencies, including the FCA and the Bank of England (BoE), collaborated in a consultation process to determine how best to regulate stablecoins.

The move resulted in a division of responsibilities, with the Bank of England overseeing large stablecoin providers that could impact the financial system, and the FCA managing and overseeing the wider cryptocurrency space.

The upcoming Market Cryptocurrency Regulation (MiCA), scheduled for full implementation later this year, will also impact stablecoin issuers in the European market.

In the EU, fiat stablecoins are considered electronic money if they represent a claim on the issuer and must comply with the existing Electronic Money Directive (EMD), confirms MiCA. Additional requirements under MiCA are expected to become available in July 2024.