07-16-2025
While all eyes have been focused on the drama of passing the One Big Beautiful Bill Act (now with an official title: “To provide for reconciliation pursuant to title II of H. Con. Res. 14”), the Senate also quietly passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act. The GENIUS Act would establish a regulatory framework for payment stablecoins, including reserve requirements, consumer protections, bankruptcy provisions and more. Cryptocurrency advocates celebrated the passage and now await final legislation from the House.
Payment stablecoins are digital tokens redeemable for a fixed amount of a fiat currency, the most common example being a dollar stablecoin redeemable for a conventional U.S. dollar. The GENIUS Act clarifies that payment stablecoins are a payment mechanism; stablecoins are explicitly ruled out as assets on which investors can speculate on rises or declines in value. The bill provides that issuers must hold $1 of reserves for each dollar stablecoin issued.
The bill spawned some very aggressive estimates of growth in the stablecoin market. As the Financial Times reports:
Goldman Sachs says in its Circle initiation note that most investors expect the value of stablecoins in circulation to grow from $240bn to more than $1tn within three to five years. Citigroup includes in its total addressable market estimates $195tn of cross-border transfers and $1 quadrillion of flows sent via SWIFT. JPMorgan says it’s “in the realm of possibility” for stablecoins to take 10 per cent of the $22tn US M2 money supply.
But why would one want to pay in stablecoins instead of an electronic payment system (e.g., Zelle or Venmo) using the dollar? The answer is ultimately in the eye of the beholder. Many believe that there may be an advantage in cross-border transactions, for example. Also, non-financial firms, such as Walmart, could issue stablecoins to engender customer loyalty. But the ultimate size of the stablecoin market is an important uncertainty. Certainly, banks are keenly aware of the potential competition, and the GENIUS Act precludes paying interest on stablecoin deposits, thereby limiting competition with the banks. If, somehow, stablecoins find a way around offering a zero return, the potential take-up would be clearly larger.
Despite their apparently narrow financial footprint, stablecoins (and the GENIUS Act) have engendered strong opposition. Writing in The New York Times, finance writers Dan Davies and Henry J. Farrell opined:
Perhaps the greatest concern about stablecoins is their potential to provoke risk to the entire financial system. Because they are neither fully inside nor fully outside the traditional financial system, they present unique, grave challenges for which there are no clear answers. For example, the Genius Act’s drafters propose regular reports on their implications for financial stability. Yet they have no clear response to a critical question: Does the United States stand behind dollar-based stablecoins or not? Specifically, if a stablecoin got into trouble or turned out to be a fraud, would it be bailed out? Doing so could create massive liabilities for U.S. taxpayers.
In part, this concern reflects the experience of the bankruptcy of Silicon Valley Bank, which held $3.3 billion of reserves for stablecoin issuer Circle. As a result, the bank could not redeem its token U.S. Dollar Coin on a 1:1 basis in the aftermath of the crisis. There are also concerns about the use of stablecoins to finance terrorism, ease illegal evasion of regulations and taxes, circumvent sanctions and otherwise undermine the anti-money-laundering regime.
So, what are we to believe? Is the future of stablecoin’s promise unbounded growth, in part because of the regulatory foundation provided by the GENIUS Act? Or is the future dangerous because the legislation opens a Pandora’s box of financial harms? The best bet is neither. Most likely, stablecoins will evolve as one of a myriad of payment systems, conventional and digital, with no single one any more interesting than the penny.
Douglas Holtz-Eakin is a Distinguished Fellow at Purdue’s Mitch Daniels School of Business and the President of the American Action Forum. He served as a senior economic and chief economist for the President's Council of Economic Advisers, and was the sixth director of the Congressional Budget Office. Doug blogs on The Daily Dish.
