Stablecoin Genius?

Understanding stablecoins and the GENIUS Act

Jun 29, 2025

I have made a few revisions to this post since it was initially published, mostly to clarify ambiguous statements and to add a short paragraph on the size of the unofficial economy, a large potential market for increased stablecoin usage.

We have heard a lot about ‘stable genius’ in recent years, most famously from our President. And now the Senate has joined in, with the recent passage of what it presumptuously calls the GENIUS Act, establishing a regulatory framework for the issuance of so-called ‘stablecoins’. The House is considering similar legislation, more modestly named the STABLE Act, and it looks like some version of these two bills will soon become law, advancing the policy priorities outlined in President Trump’s January executive order, “Strengthening American Leadership in Digital Financial Technology”. It is far from clear whether the GENIUS Act will live up to its name, but its promotors insist that we are living on the cusp of a new age in financial innovation, which this legislation will advance and which many of us do not yet understand as well as perhaps we should.

And so we must ask: What exactly are stablecoins? How are they used and for what purposes? What role will stablecoins likely play in our banking and financial system? What risks do they pose? And why are our politicians so keen to push this particular agenda?

Let’s explore.

What are stablecoins? A stablecoin is a type of cryptocurrency asset which can be readily redeemed for a fixed and stable (hence the name) nominal amount of a denominated fiat currency, for example US dollars or Euros. And so a $1 stablecoin should always be redeemable on demand into exactly $1 of USD-denominated cash and/or accepted in exchange for $1 of goods, services or other assets in the crypto economy and increasingly in the real economy. Described this way, stablecoins seem an awful lot like a crypto version of traditional bank demand deposits, with the banks having been replaced by stablecoins issuers, which is exactly what they are intended to be.

Stablecoins are issued in the form of ‘tokens’, which are held in cryptocurrency ‘wallets’ rather than in traditional bank or brokerage accounts, and are traded on ‘crypto exchanges’ such as Coinbase and Binance. Crypto tokens are digital assets which are created using some form of ‘smart’ (self-executing) contract and sit on top of a blockchain network in a manner similar to the way in which mobile apps sit on top of a mobile phone operating system. Tokens differ in fundamental ways from blockchain ‘native currencies’ or ‘coins’ (eg Bitcoin or Ether), which are created in a computerized and electricity-intensive process known as ‘mining’. Stablecoins are meant to maintain a stated nominal value (eg $1), but this is not true of crypto assets such as Bitcoin, the nominal price of which can and does fluctuate wildly and which was designed to protect against the debasement of fiat currency and so to maintain its real (inflation-adjusted) value, but not its nominal value.

Stablecoins are just one form of token. Other forms include ‘utility tokens’, which provide access to some commercial or consumer product or service; ‘security tokens’, which represent ownership of some specific asset (eg equities or real estate); ‘governance tokens’, which allow holders to vote on some communal decision; and ‘non-fungible tokens (NFTs) which represent a particular unique physical or digital item (eg art, or a Trump collectible). With the exception of NFT’s, tokens are ‘fungible’, meaning that all stablecoin tokens created by the same issuer (eg USDC or USDT) are indistinguishable one from the other, in the same way that all $1 bills printed and issued by the federal government are themselves fungible.

Who issues stablecoins? In an unregulated crypto economy, just about anyone can issue stablecoins, with the help of third-party service providers, and there are no rules as to what reserve assets (if any) the issuer must put up to back future redemptions of its stablecoins. Even in a completely unregulated environment, however, the stablecoin issuer must find buyers willing to purchase its tokens, which will be easier to accomplish if the tokens are in fact backed by a sufficient reserve of high-quality liquid assets and if the buyers can reasonably expect that the tokens will be broadly accepted as payment by commercial and/or financial counterparties. In the absence of appropriate regulation, however, the issuance of stablecoins may become rife with fraud and abuse, which is already a significant and perhaps increasing problem across much of the crypto economy.

Readers will recall that the Trump family’s privately-held crypto firm, World Liberty Financial (WLF), has issued two sorts of tokens. The first was a governance token, of zero intrinsic value, which reportedly raised over $500 million of cash for the President and his family. The second was a stablecoin (USD1) issued by a WLF affiliate in exchange for $2 billion of cash from a UAE government-affiliated sovereign wealth fund, MGX. The newly issued stablecoins were used by MGX to purchase an ownership stake in Binance, an off-shore crypto exchange which at the time was seeking regulatory relief from the US government (ie from the Trump administration). The USD1 coins purchased by MGX (and transferred to Binance) were the first issuance of stablecoins by WLF, and that initial issuance currently represents ca 90% of USD1’s total circulating supply ($2.2 billion). It is estimated that World Liberty Financial will receive over $80 million a year from the interest income generated by the reserve assets backing USD1 (at current interest rates), which income will not be shared with its coin holders and will presumably find its way into the Trump family coffers.

The two most widely held USD-denominated stablecoins today are USDT (Tether) and USDC (Circle), with a combined $200 billion of coins in circulation, representing 75% or so of the total supply of USD stablecoins issued to date (ca $260 billion). The majority of this amount (ca $140 billion) has been issued by Tether, a very controversial company which no longer provides direct issuance or redemption services to individual or corporate customers in the US, although it remains heavily used outside the US and is reportedly the stablecoin of choice for the criminal underworld. Circle, on the other hand, continues to dominate the domestic USD stablecoin market with $60 billion of USDC coins currently in circulation, up from $44 billion in December. Circle recently went public in a blockbuster IPO, issuing shares at a price of $31 a share. The offering was highly successful and now, roughly one month later, the CRCL shares trade at a price of $240, with an implied market value of over $50 billion, equal to 67x book value, over 20x annualized quarterly revenue and almost 200 times earnings. Which is pretty extraordinary for a payments company whose primary source of revenue today is the interest income earned on non-interest-bearing customer cash deposits.

How do stablecoin issuers make money? The current business model of stablecoin issuers is a simple and profitable one. Stablecoin issuers take customer funds for safekeeping and they use those funds to buy high-grade liquid financial assets (for example US Treasury bills), typically holding reserve assets in an amount equal to at least 100% of their deposit liabilities. These reserve assets generate interest income, which flows directly to the stablecoin issuer and which is not (currently) passed through to the stablecoin holders. With USD interest rates at or around 4%, every $1 billion of new stablecoin issuance generates ca $40 million of annual interest for the issuer.

But why, you might ask, are stablecoin holders willing to forego interest income on their deposits? The answer is ‘convenience’. People are willing to hold non-interest bearing financial instruments because of it helps facilitate transactions and provides privacy in ways that interest-bearing financial instruments may not. And so in the TradFi economy, we observe that there is something like $2.5 trillion of non-interest paying USD currency outstanding, the majority of which resides outside the US and much of which is used to facilitate transactions (and provide privacy) in the underground economy. And even in the US banking system, approximately 25% of total USD bank deposits are held in the form of non-interest-bearing demand deposits, which do not provide privacy (like currency) but are very convenient for making payments and settling transactions.

It is quite likely that the current revenue model of stablecoin issuers will evolve over time, as the issuers begin to monetize the volume of payments and transfer activity using their coins, and find other ways to profit off their customers’ increasingly creative uses of stablecoins (for example in so-called ‘yield farming’). [For more on this subject, see the Circle IPO Registration Statement.]

How are stablecoins used today? At present, stablecoins are primarily used to settle crypto trades, without the need for multiple moves into and out of fiat currency. Stablecoins are also used to transfer funds, particularly between countries with weak banking systems, stringent capital controls and/or high transaction processing fees. In high-inflation countries, stablecoins are increasingly used a store of value in digital dollar savings accounts. Stablecoins can also be used to pay for goods and services from some (though not many) merchants in the traditional economy, most often in less developed economies (eg at the proverbial Turkish bazaar) and in a few countries with strongly pro-crypto financial policies (eg UAE and Singapore).

How actively used are stablecoins today? Well, the data is a bit rough and so it is hard to say. But from what I can tell it would appear that reported stablecoin transaction volume may currently be as high as $70 billion per day. However, it seems that only a small portion of this total amount (likely less than $10 billion per day) consists of actual payment and money transfer activity, with the vast majority of the reported volume consisting of trades between crypto assets (eg sell bitcoin, buy $TRUMP), with stablecoins used as a unit of account but not necessarily as a true medium of exchange.

Global GDP in 2024 was estimated at around $110 trillion, which excludes another $20-25 trillion or so of estimated activity in the ‘underground’ (or ‘informal' or ‘shadow’) economy. The underground economy includes ‘black market’ illegal activity, unreported labor and various forms of tax evasion and regulatory avoidance, much of which is transacted in the form of USD payments. According to Federal Reserve estimates, 60-70% of total circulating USD currency ($1.4-1.6 trillion) is held offshore, a large portion of which is used in off-the-books or illicit trade, representing a large opportunity for the increased usage of unregulated stablecoin (eg in Tether).

But before we conclude that stablecoins will soon take over the USD financial system, let’s compare the reported crypto numbers to the volume of activity across the various traditional payment and transfer networks. These ‘legacy’ systems—ACH, SWIFT, the card networks, Fedwire etc— currently handle some $25+ trillion of daily transactions, which excludes the $10 trillion per day of USD trading in the cash (non-derivatives) securities markets. Even if the legacy payment systems are not about to go away tomorrow, the absolute size of the fund flows provides a massive opportunity for stablecoins, if they can find a way to take (and keep) even a small share of this business.

Stablecoins, crypto and crime. Not everyone is sold on the merits of stablecoins and crypto. of course. The Economist calls crypto the “ultimate swamp asset” and suggests that stablecoins are just the latest “crypto craze”. Paul Krugman is another critic who believes that stablecoins have “no clearly useful purpose” outside the crypto economy, add little or no value compared to currently available TradFi payment technologies, and are currently used primarily to facilitate criminal activity, bypassing the banking system with its irksome KYC (Know Your Customer) and AML (Anti-Money Laundering) requirements. Stablecoins, in this view, are a technology solution in search of a legitimate problem to address.

One of the reasons criminals like to use stablecoins and other crypto assets is because of the pseudo-anonymity associated with these forms of fund transfers. Although the blockchain addresses of crypto counterparties is a matter of public record (at least on public networks), this information does not necessarily reveal the real-world identify of the ultimate parties to crypto transactions if they take care to disguise it (as the best criminals generally do). Of identity obfuscation is also possible through TradFi payments systems, with the use of shell companies, off-shore accounts and the exchange of suitcases full of Benjamins ($100 bills). But swapping Tether with the click of a mouse seems a whole lot easier, and can be even tougher to trace. (Tether is reportedly the stablecoin of choice for crypto criminals, and a disproportionate share of these transactions reportedly occur on the Tron network owned by Justin Sun, who B&B readers may remember as the largest individual owner of $TRUMP coins.)

Stablecoins and the payment system. Stablecoin transactions are typically processed on public blockchain networks (eg Ethereum, Solana and Tron), bypassing traditional payment ‘rails’ such as ACH for US bank-to-bank transfers; SWIFT and CHIPS for international bank transfers; proprietary credit card networks (VISA and Mastercard); and the Federal Reserve clearing systems FedNow and Fedwire. Stablecoins have the potential both to innovate and to disrupt these TradFi payment flows by offering a number of apparent benefits to transaction counterparties: 24/7 transaction availability, faster execution and settlement times, lower cost (fees), broader accessibility (no bank account needed), and the potential for greater payment customization via smart contracts.

As noted above, stablecoin transaction volumes currently represent a minuscule share of the comparable dollar flows in the Trad Fi economy, but the stablecoins flows are growing quickly and will likely accelerate further with the passage of enabling legislation in the United States. It is this aspect of stablecoins—the impact on current payment systems—which creates the most obvious opportunity not only for large-scale innovation but also for disruption in the transformation of our financial economy.

But before we all go out and short the shares of ‘legacy’ banks and card issuers, we should consider the possibility (likelihood) that a significant share of future stablecoin issuance will be hosted not by new VC-backed DeFi challengers, but by the stodgy old TradFi incumbents, most notably big banks, card issuers and major retailers. It is even possible that the Main Street banks will get into the action, through joint ventures of various sorts. How this will play out is far from clear, but with $25+ trillion of daily USD payment and transfer flows running through TradFi networks globally, there is a lot of money to be made or lost along the way.

Stablecoins are a new form of private money. Students of financial economics will understand that the concept of “money” is a somewhat nebulous one, complicated by different measures of money derived and reported for different purposes. The narrowest definition of ‘base money’ in the US economy consists solely of currency (coins and bills) plus bank reserves (bank deposits held at the Fed), both of which are liabilities of the Federal Reserve and so are forms of ‘public money’. But the concept of ‘money supply’ is a much broader one, and it is important that we understand how this works before we discuss how stablecoins might fit into this picture.

The largest component of US base money today is bank reserves, comprising 60% or so of the $5.8 trillion total, which are not included in any definition of the money supply. Because bank reserves do not circulate in the economy—banks have to lend out (or invest) their reserves for circulating money to be created—the narrowest definition of the US money supply (M1) consists solely of currency in circulation ($2 trillion) plus checkable demand deposits held in the banking system ($8 trillion). If we expand the money supply definition somewhat to include less-liquid forms of savings such as bank savings accounts, small time-deposits and retail money market funds, the total money supply (M2) more than doubles, to around $22 trillion currently. And if we include more institutional forms of money such as larger time-deposits, institutional money market funds, repo agreements and Eurodollar deposits (USD deposits held at foreign banks), we probably add another $3-5 trillion to our definition of what the Fed used to call M3.

However we define it, the vast majority of the US money supply consists of financial instruments created not by the federal government (currency and reserves) but rather by private financial institutions, most notably various forms of deposits created by banks. The most liquid (money-like) category of bank deposits are demand deposits, which can be used directly to settle commercial as well as financial transactions, with payments made by check, debit cards or ACH transfer. Bank deposits are assets of the customers who hold the funds in their bank accounts, but they are liabilities of the banks which create the deposits, in the same way that currency and reserves are liabilities of the Federal Reserve.

Readers may recall from Econ 101 that bank deposits are created in two ways: (1) in exchange for the receipt of currency, as when you hand over a stack of dollar bills to the teller at the bank; and (2) in the process of making a loan, when the bank credits your account with the amount you borrowed. When banks create new deposits through their lending (and investment) activity, they also increase the supply of money circulating in the economy; and when banks contract their lending (and investment) activity, they shrink the supply of money. This puts depository lending banks right at the heart of our monetary system, as the primary mechanism for transmitting monetary policy into the ‘real economy’, where real people are employed and real goods and services are exchanged. Which of course is one of the main reasons we should all be concerned about the future impact of increased stablecoin issuance on the TradFi banking system.

Stablecoins today represent a private money claim of around $260 billion, a bit over 1% of the Fed’s broadest money supply definition (M2), which has more than doubled over the past year. But as stablecoin issuance grows in the years to come—some forecasts suggest that it could increase by a factor of 5x by 2030—this particular form of private money will become increasingly relevant to the management of our money supply and to the maintenance of stability in our financial system, with dynamics which are not yet well understood.

Stablecoin risk and uncertainty. At one level, prudently managed stablecoins would appear to be among the least-risky financial instruments available in our contemporary financial system, given their seemingly solid reserve composition and the low redemption rates experienced to date. Of course not all stablecoins are managed in a prudent or transparent manner, as was made clear with the 2022 collapse of Terra and Luna and as suggested by the continuing controversy over the reserves policy of market leader Tether. But even well managed stablecoins are not entirely without risk, as we saw in 2023 when price of the USDC stablecoins issued by Circle Internet fell to $0.87 as a result of the failure of Silicon Valley Bank, where Circle held over $3 billion (8%) of its total reserve assets in the form of uninsured deposits.

The risks associated with stablecoins come in several forms. The most obvious risk is the possibility of losses incurred in the reserve assets backing outstanding stablecoin obligations, as we saw with USDC and SVB. There is also the related risk of disruption in the US Treasury market in the event of large stablecoin redemptions, particularly redemptions at the market leaders Tether and Circle, which today account for 75% or so of total stablecoin issuance. (Tether itself has over half of the market, making its controversial reserves policy particularly concerning.) There is the risk of fraud, which is far from a trivial concern in the broader crypto community. And there are broader systemic risks and uncertainties posed by the increasing interconnectedness of stablecoins with other parts of the monetary system, including the risk of deposit flight from the banking system.

These same risks are of course also present to varying degrees with other forms of private money. It is not obvious that the risks posed by stablecoins are inherently any greater than those posed by other widely-used financial instruments created by the ‘shadow banking’ system (securities dealers, money marker funds, repo counterparties, Eurodollar issuers etc). Nor are stablecoins inherently any more risky than uninsured bank demand deposits, which are backed by cash reserves equal to only a fraction of the issuer’s deposit liabilities, a big contrast to fully reserved stablecoins.

But all of these forms of private money are prone to ‘run’ from time to time, and when this happens the systemic impact can be quite significant, as we saw in 2008. Which of course is why the Fed regularly provides backup liquidity facilities for depository banks in the form of discount window lending, and why at times of crisis it also takes on the mantle of lender of last resort to other non-bank issuers of private money obligations, which in the future may have to include stablecoins as well.

Stablecoins and UST Bills. Much has been made of the impact which increased stablecoin issuance may have on the market for short-term US Treasury bills, which are expected to be the primary reserve asset backing USD stablecoin liabilities. Stablecoin proponents, including the US Treasury Secretary, have suggested that the increased issuance of stablecoins after the passage of enabling legislation will “drive demand from the private sector for US Treasuries… [and could] lower government borrowing costs and help rein in the national debt.” Some observers have even suggested that the increased use of stablecoins would effectively force the federal government to increase its issuance of short-term bills, both in absolute amount and relative to the issuance of longer-term notes and bonds, which I suppose might come in handy as Congress prepares to add another $3-4 trillion to our federal deficit and debt with passage of the One Big Beautiful Bill Act.

These arguments and observations may well be overstated, however, as the WSJ has reported. It is true that increased stablecoin issuance would tend to increase the demand for UST bills, insofar as the demand for reserve assets grows with the circulating supply of stablecoins. But the growth in outstanding stablecoins will also reduce the demand for T-bills from those financial institutions whose own funding has been cannibalized by stablecoins, and which no longer need to hold the same level of reserves to back their own monetary liabilities. And with T-bill issuance currently running at a pace of $2 trillion per month (much of which goes to refinance other maturing Treasury obligations), it is hard to see how any increased net demand from stablecoin issuers would have much of an impact, particularly after considering the countervailing impact from any increased supply of bills by the US Treasury.

And we can probably say something similar about the impact which stablecoins may have on international demand for the US dollar and for the dollar’s share of global trade and capital flows. These are very large markets, much larger than the T-bill market, and it is hard to see how even a $1+ trillion growth in stablecoin issuance over the coming years will make much of an impact.

The impact of stablecoins on the US banking system. In a widely cited opinion piece published by The New York Times, the renowned economic scholar Barry Eichengreen, author of the classic book about the US dollar, Exorbitant Privilege, declared that the promotion of stablecoins facilitated by the GENIUS Act would bring chaos to the US economy, ushering in a period of financial instability reminiscent of the 19th century period of Free Banking (from the 1830s to the Civil War). Eichengreen’s comments were widely cited by opponents of the GENIUS Act, many of whom I suspect did not really understand the author’s reference to the Free Banking Era and may not actually have read the full opinion piece.

The key point made by Eichengreen in his NYT article relates not so much to the inherent risk associated with stablecoins per se, but rather with the demonstrated inability of financial regulators throughout our financial history to manage the systemic risks posed by new (and sometimes not so new) forms of private money, whatever form they might take. And while stablecoins are currently the focus of public debate, the list of other forms of run-prone private money which have created financial chaos in the past includes uninsured bank deposits, money market shares, repo obligations and various forms of asset-backed-securities, as we saw during the global financial crisis and again in 2023. And in each of these crises, the Federal Reserve felt compelled to invoke its legislative emergency authority to backstop these various forms of private money, casting aside moral hazard concerns and encouraging yet more “heads we win, tails you lose” behavior by the financial services industry and its customers.

What are the key provisions of the GENIUS Act? The recently passed GENIUS Act, aka the Guiding and Establishing National Innovation for U.S. Stablecoins Act, aims to establish a comprehensive federal regulatory framework for payment stablecoins. I have included below links to two GENIUS Act memos, put out by the law firms of Sullivan & Cromwell and Davis Polk, for those readers who want to get deeper into the weeds. But here is a rather lengthy summary of what I have learned from these and other sources:

Overview. The GENIUS Act covers several topics: (1) the licensing and regulation of stablecoin issuers, (2) reserve requirements and asset quality, (3) transparency and audit obligations, (4) consumer protection and marketing standards, and (5) supervision, enforcement and anti-money laundering (AML).

Payment stablecoins. The GENIUS Act regulates only one type of stablecoin, a so-called “payment stablecoin”. As the name suggests, these are stablecoins which are used for payments of various sorts: buying goods and services, paying bills, transferring funds, and settling transactions on the blockchain. As such, payment stablecoins are designed to serve as a medium of exchange as well as a store of value, but not as an investment with a current yield or the potential for future capital gains.

The GENIUS Act applies only to USD-denominated payment stableoins issued within the United States, but it applies equally to both domestic and foreign issuers doing business here.

Permitted issuers. The GENIUS Act establishes three types of Permitted Payment Stablecoin Issuers (PPSIs): (1) subsidiaries of FDIC-insured depository institutions (IDIs), which will be regulated by their parent company’s primary regulator (eg the Fed for bank holding companies), (2) federally chartered non-bank issuers, which will be regulated by the Office of the Comptroller of the Currency (OCC), and (3) state-chartered institutions which have been authorized by qualified state regulators and which have less than $10 billion of outstanding stablecoins issued. (State issuers with more than $10 billion outstanding would need to migrate to federal regulation by the OCC.)

Required reserves. All PPSIs will be required to hold qualified reserve assets backing 100% of the monetary value of all outstanding tokens. Qualified PPSI reserves are to consist only of “high-quality short- duration assets”, including demand deposits at insured institutions (which deposits themselves will likely be uninsured due to size), US Treasury securities with an initial or remaining maturity of no more than 93 days, overnight repo and reverse repo collateralized with UST securities (of any maturity), money market funds that invest only in other eligible reserve assets (ie UST bills and UST repo), and any other “similarly liquid federal government issued asset” approved by the applicable regulator (agency MBS?).

Reserves reporting. PPSIs will be required to make monthly public disclosure of their reserve composition, with annual audits required only for issuers managing more than $50 billion in outstanding tokens.

No Fed master accounts. The GENIUS Act prohibits PPSIs from holding master accounts at the Fed, which if permitted would effectively have put stablecoin liabilities on a par with bank reserves as a form of public money, creating the potential for massive cannibalization of other forms of private money across the financial system.

Bank-like regulation. The GENIUS Act directs federal bank regulators to jointly issue PPSI regulations regarding capital and liquidity requirements, reserve asset diversification, interest rate risk management and operational, compliance and information technology risk management, all of which must be “tailored” to the business model and risk profile of the PPSIs. Like regulated banks, PPSIs are subject to Bank Secrecy Act provisions, sanctions compliance, KYC and AML requirements.

Issuer activities. PPSIs will be permitted to engage only in a limited set of stablecoin-related activities, including issuing and redeeming payment stablecoins, managing related reserves, providing custodial or safekeeping services for payment stablecoins or related reserves, and undertaking activities to directly support these activities. And so unlike banks, PPSIs cannot make loans or hold other forms of investments such as corporate or municipal debt. PPSIs would be permitted to engage in other non-payment activities only if authorized to do so by its regulator.

No tying. PPSIs would not be permitted to provide services to a customer on the condition that the customer obtain an additional paid product or service from the PPSI or its subsidiary (or agree not to obtain an additional product or service from a competitor).

Regulator interventions. Federal regulators are authorized to limit or block PPSI token redemptions in “unusual and exigent circumstances” (a phrase lifted from Section 13(3) of the Federal Reserve Act, which B&B readers should be familiar with).

Priority claims of depositors. As with bank deposits, PPSI liabilities would be considered to be priority claims in the event of issuer insolvency.

Misleading advertising. PPSIs are prohibited from engaging in misleading marketing, including statements suggesting that its tokens are FDIC-insured, government-backed or equivalent to legal tender.

Criminal liability. The Act provides that any person other than a PPSI that issues a payment stablecoin in the United States would be subject to criminal prosecution.

Public officials. Members of Congress and executive branch officials are prohibited from issuing their own stablecoins, a provision which explicitly excludes from its coverage both the President and the Vice-President.

In conclusion. As readers will know, I am not a big fan of the Silicon Valley FAFO mindset when applied to the management, governance or regulation of our financial system. I think it is fine if Elon Musk wants to let Tesla’s customers pay for a new Cybertruck with stablecoins or even bitcoin, but financial institutions (particularly banks) play a special role in our economy and they should be run with a more balanced approach to risk and return than we might accept from Tesla. Call me old fashioned, but I believe that the risks incurred by our core banking institutions should be prudent ones, and these firms should not be allowed to put the stability of our financial system or the health of our real economy at significant risk in their pursuit of profit on the ‘next big thing’.

Yes, innovation is important in the financial services industry, as it is in most sectors of our economy, which is why we allow non-bank financial institutions to operate in quite different ways than more tightly regulated banks. But we cannot allow largely unregulated and fast-growing sectors of the financial services industry (like crypto) to cannibalize at will other mission-critical parts of our financial system. In this regard, the GENIUS Act seems to strike a reasonable balance between the interests of financial innovation and financial stability, which may be why it has attracted such strong bi-partisan support in the Senate.

There is of course another less charitable view of the bipartisan support for stablecoin legislation. The crypto industry reportedly spent over $100 million to influence the outcome of the 2024 elections, half of all corporate contributions, and it is no doubt spending heavily on post-election lobbying as well. These investments appear to be paying big dividends already, with the advance of stablecoin legislation and other executive actions taken by the Trump administration.

And now that President Trump has so closely aligned his own personal financial interests with those of the crypto industry (actions which to date have gone largely unchallenged by Congressional Republicans), and with the Senate having explicitly excluded the President from the GENIUS Act prohibitions relating to other public officials, it is anyone’s guess what the crypto industry will ask for next, and most likely receive.

Links

Stablecoin Legislation Will Juice Demand for Treasuries, To a Point, WSJ, June 18, 2025

GENIUS Act Passes the Senate, Davis Polk, June 17, 2025

The GENIUS Act Will Bring Economic Chaos, Eichengreen, NY Times Opinion, June 17, 2025

The Financial Stability Implications of Stablecoin Reserves, Steven Kelly, Without Warning, June 15, 2025

Stablecoins and the US Treasury Market, Yadov and Malone, Vanderbilt Law, June 2025

The Looming Threat of Nonbank Stablecoins, Wilmarth, GW Law, May 2025

Digital Corruption Takes Over DC, Paul Krugman, Substack, May 30, 2025

Circle Internet Group, S-1 Registration Statement, May 27, 2025

Crypto has Become the Ultimate Swamp Asset, The Economist, May 17, 2025

Stablecoin Legislation, Sullivan & Cromwell, March 19, 2025

Stablecoins: the Real Crypto Craze, The Economist, February 23, 2025