Judge Stablecoin Legislation by the Tether Test

For more than a decade, federal policymakers stood by as the market value of stablecoins — digital tokens pegged to the dollar or another currency — ballooned to about $250 billion, overtaking the deposit bases of many regional banks. So it’s encouraging to see Congress finally determined to establish some guardrails.

Well-regulated stablecoins could provide some helpful competition for existing cross-border and interbank payment technologies. The bills under consideration — the Senate’s Genius Act and the House’s Stable Act — aim to impose some useful limits. Many details remain to be ironed out. But the test for any final legislation should be a relatively simple one: Does it constrain overseas companies such as Tether Holdings SA, the industry’s dominant issuer and biggest risk?