Currently, there is approximately $250 billion worth of stablecoins in circulation. If the House approves the proposed legislation, which has previously seen a similar version, known as the STABLE Act, the market could witness a surge in new issuers. Major retailers like Amazon and Walmart, along with various participants in the payment ecosystem, are reportedly preparing to launch their own digital tokens. Additionally, major US banks and prominent tech companies are also expected to enter the fray, alongside numerous entrepreneurs eager to tap into this burgeoning sector.
The Trump family has already established a considerable presence in the cryptocurrency landscape, according to reports.
A recent analysis by Citigroup predicted that the total issuance of stablecoins could soar to $3.7 trillion by 2030, while a study by the US Treasury projected a figure of $2 trillion by 2028. The advantages associated with widespread adoption of stablecoins are quite clear. They could eliminate intermediaries in financial transactions—crypto operates on a peer-to-peer basis—thus rendering merchant fees, interchange costs, and wire transfer charges increasingly obsolete, along with reducing the wait time for fund transfers. This shift explains why retailers show keen interest in stablecoins, as they pose a significant challenge to traditional credit and debit card companies.
Scott Bessent, the US Treasury Secretary, has expressed strong support for the potential implications of stablecoins on the US dollar and the Treasury market. Currently, the US dollar and Treasury securities are the predominant assets backing stablecoins, and this trend is likely to continue under the framework proposed by the Genius Act. This development could create a substantial new demand for the dollar and Treasury securities, reinforcing the dollar’s position as the world’s leading currency while potentially lowering the cost of funds for the US government, according to Bessent.
In practice, the majority of funds needed to support the dollar-for-dollar backing of stablecoins will likely originate from conventional financial institutions, such as banks and money market funds. This means that existing flows of US dollar assets would be redirected rather than sourced from entirely new avenues.
This aspect is crucial, as it indicates a potential withdrawal of deposits from heavily regulated environments—where deposits below $250,000 are insured—into a less regulated space where funds lack such protections. Unlike bank deposits, which are backed by the Federal Reserve, stablecoins do not have a lender of last resort, a point of criticism noted by the Bank for International Settlements (BIS). Additionally, there are fewer safeguards against the misuse of tokens for illicit purposes, along with limitations in their ability to create money, which further highlights their vulnerabilities.
While the US dollar is widely trusted and recognized globally, there is no assurance that a $1 stablecoin will maintain its value or be accepted universally as a medium of exchange. If projections about the expansion of stablecoin issuance prove accurate, they could significantly influence the stability of the US banking system and potentially others. This evolution would shift a large segment of stable retail deposits—typically insured and stable—into more volatile and uninsured wholesale deposits. The regional banking turmoil experienced in the US in 2023 was notably triggered by a run on the wholesale deposits of Silicon Valley Bank.
Under the provisions of the Genius Act, stablecoin issuers must maintain $1 in easily redeemable assets for each $1 of stablecoins issued. It is relatively straightforward for these issuers to acquire US Treasury bills or repurchase agreements secured by Treasury assets to correspond with new deposits. However, should a sudden surge in redemption requests occur, requiring the urgent liquidation of underlying assets—akin to a “run” on a bank—there is a risk of suffering losses on the face value of Treasury bills and other assets during a forced sale. Some existing stablecoins have traded below their expected value, and without a guarantor or a lender of last resort, any liquidity crisis in the stablecoin market could trigger a chaotic exit by investors, aggravating losses and raising concerns about contagion across the sector.
While the Genius Act explicitly states that stablecoins would not be government-backed or have access to Federal Reserve facilities, a sector-wide collapse leading to the sale of trillions of dollars in Treasury securities and bank deposits could prompt significant pressure on the White House to intervene. This pressure would be particularly intense if the sitting president had substantial financial stakes in the stablecoin market. The act prohibits members of Congress and the executive branch from owning or issuing stablecoins, though efforts to include the president and vice president in this prohibition fell short.
Scott Bessent has again voiced strong support for the implications of stablecoins on the US dollar and Treasury market. Another major concern regarding the act is its potential to recreate a scenario reminiscent of 19th century America, where virtually anyone could establish a bank and issue their own currency, provided they had the requisite collateral.
Unlike the universally accepted US dollar, there is no guarantee that a stablecoin pegged to the dollar will hold its value or be widely accepted in transactions. While fiat currencies are fungible, cryptocurrencies are not, leading to variability in the assets backing each stablecoin. Such differences can affect their stability in response to external events and their ability to manage runs effectively.
Without real-time continuous auditing of every stablecoin issuer, trust levels may not match those found in traditional banking and payment systems. However, by recognizing and legitimizing stablecoins, US lawmakers are integrating cryptocurrency into the mainstream banking and payment frameworks, potentially fragmenting them and introducing new risks of instability. Only time will reveal whether this move is prudent.
