STABLECOINS ARRIVE
It DOesn’t Take A Genius
This past week, on June 17, 2025, the US Senate passed the Genius act after a long and fitful debate filled with stops and starts. The bill now goes to the House, giving the US a chance to have our first federal framework for a stablecoin.
“Wait,” I hear you cry. “What even is a stablecoin, and why do we need a bill?” Well, that’s a great question, so let’s talk about it, starting with a (bad) definition.
When crypto people talk about a stablecoin, the rough definition from 2014 (when they were first created) until recently has been “the representation of a unit of currency on a blockchain”. Seems simple, right? Unfortunately, that definition has caused a lot of havoc. Why? Because people tried all kinds of things, ranging from relatively mundane if janky (Tether) to complete lunacy (UST) to achieve that goal.
As a result, there was a bipartisan group of lawmakers in the United States who looked at the implosion of algorithmic stablecoins and the black box nature of Tether and said “You know what? We can do better.”
What they came up with to solve this problem was the Genius act.
OPENING THE BOX
The Genius act canonizes a specific kind of fiat-backed stablecoins as the right way to do things. The framework is very similar to the one the New York Department of Financial Services (NYDFS) has been using to regulate stablecoins since 2018, and this is a good point to remind all of our readers that despite the sound and fury about the stablecoin space, zero NYDFS regulated stablecoins have had any peg stability or reserve sufficiency problems. Why is that? Well, amusingly, the NYDFS framework is basically lifted straight out of the work of a joint group of Federal regulators around cash product and money market reform after the financial crisis. This means there is a straight line from the collapse of the Reserve Fund in 2008 to the Genius bill in 2025, as our regulators and legislators have greatly tightened up the rules around what is legally allowed to call itself “stable” and strictly hold a $1 value.
So how are they doing this?
Reserves & Controls
(a.k.a. Congrats you are a Gov’t MMF Now)
In the Genius act, there are some pretty steep requirements for issuers, essentially imposing bank-level controls and regulation upon them.
Stablecoin reserves must be composed only of bank deposits at US banks, treasury bills, and overnight loans secured by treasuries (which, in the classic manner of over-jargonification, Wall Street calls repurchase and reverse repurchase agreements or repo).
Additionally, the reserves must be segregated, titled and held for the benefit of the stablecoin holders, and may not be used for leverage in any form. In a bankruptcy, they will be set aside and liquidated on a 1:1 basis to pay out all the stablecoin holders.
There must be audits of the issuer, there must be attestations that the assets are complying with guidelines, and there will be supervision and regulatory exams by the big time federal regulators (e.g. Federal Reserve, OCC types) who deal with all the big banks for any stablecoin that grows sufficiently large.
The issuers must also have robust anti-financial crime programs, and cannot simply issue things onto a blockchain, close their eyes, and pretend everything is fine.
In short? Genius treats stablecoins like boring, normal financial products. The reserves and holding structure make them look like government money market funds, which are the safest product in the cash stability space, as compared to over 500 banks that have failed since 2008, zero government MMFs have. The operations look more like a trust or bank, with requirements around tracking, holding, and monitoring assets that come in.
This is all very normal and, honestly, anticlimactic. There are no bitcoin-backed stablecoins in Genius. There are certainly no algorithmic stablecoins. There are not even prime money market fund structures. It turns out naming the bill Genius is quite ironic, as they didn’t do anything particularly complex or intellectual here. Instead, the Senate went with basic.
DAVID: So that’s the content, let me just chime in here about the infrastructure. What makes stablecoins interesting is the blockchain - without that, they’re just notional receipts for dollars. Stablecoins have and will continue to be issued/printed into many different blockchain ecosystems, like Ethereum and Solana. These systems combine features that ultimately make stablecoins matter in the first place, above all the ability to be accessed and transacted with from anywhere with an Internet connection.
Stablecoins are in some ways half-measures in the crypto-financial system, because they are centrally issued and can be censored at state edict. But they get the stability and access advantages of blockchain systems, so to speak, for free.
Bottom line: Under formalized regulatory guidance, legally-enshrined dollars will move instantly anywhere on Earth, including peer-to-peer, subject to law enforcement and public-interest oversight at an incredibly granular level, at very low cost.
ARE YOU A GENIUS ISSUER?
“The Tokens are coming!” - PauL Revere (Maybe)
So is everyone going to launch a token now? News has already broken that JPM has registered JPMD and intends to deploy a deposit token (a close relative of the stablecoin) on the Base blockchain, though it is an open question how much JPM believes in that strategy vs. is simply experimenting in public thanks to their pre-existing relationship with Coinbase.
The news that Amazon and Walmart are exploring stable tokens is likely to prove a bit less relevant, given the fact that the Genius bill explicitly requires large companies not primarily in the financial services business to get exceptional permission from regulators in order to launch a stablecoin. It’s likely this is going to prove a difficult (impossible?) hill to climb for many of the non-financial people already under antitrust scrutiny, and certainly, the anti-tying provisions in the bill would make it extremely difficult to monetize the stablecoin in a way that will prove meaningful. Instead, an exploration of launching a stablecoin may lead to them partnering with more financially oriented firms to use their offerings.
Ironically, part of this dynamic of stablecoins coming primarily from certain financial firms is likely to be created by the interest payment prohibition by the issuer in Genius. This is going to require workarounds like paying them as fixed rewards, or having distribution partners who pay the rewards instead, vs. the issuer doing it directly. Competitive forces dictate that people will find legal workarounds here, as the idea that somehow management at Tether and Circle will be the only people to reap massive profits from this space and nobody will compete, and also that banks can just continue to pay zero on deposits and consumers won’t notice, is misguided. Markets, like the infamous quote about life in Jurassic Park, find a way. In fact, I will go so far as to predict that (just like the initial prohibition on interest on bank deposits) this part of the bill will eventually be repealed, or prove so toothless it doesn’t need to be repealed because it essentially does nothing.
How Will Things Change
In Chaos, there is danger and opportunity
Stablecoins are a fundamentally different value proposition for people using the payments system than banks. In the context of a bank, the current setup for the average user (retail or small business) is:
Deposit at the bank
Earn 0%
The bank makes many loans with the money you deposit using leverage
If those loans go well, the bankers pay themselves big bonuses
If they go poorly, the depositors end up in FDIC resolution land, where uninsured deposits may be lost and insured deposits may experience disruptions in use
That’s not a great value proposition, and if banks didn’t have a near-monopoly on electronic payments, it’s honestly unlikely anyone would use that system if it were pitched from zero today.
So what is the arrangement of a stablecoin? For the average user (retail or small business), it looks more like:
Deposit into the stablecoin
Earn 0%
The stablecoin will mostly put the money into t-bills and overnight loans collateralized by treasuries
That’s super boring so nothing ever happens
This is a strictly better arrangement for someone using the system for payments. Even in 2008, gov’t money market funds were fine; all the money market fund issues were in the prime money market fund space, which is where all the bank commercial paper was held, back to levered bank balance sheets actually being the risky thing for depositors here!
Now, notice that what stablecoins are not doing in this case is paying interest. There is a ban on the issuer paying interest directly to holders in the bill (though perhaps not if there are other things involved, and perhaps not applying to intermediaries). What will matter is then the distribution, user experience, efficiency gains in the payments space, and distribution to those without good dollar rails currently, assuming workarounds are not found that drive the economics as well.
The other big change is going to be for merchants and corporate treasuries. Right now, if you have worked in that space, banking relationships and moving money around is largely the bane of your existence. You get overcharged for things, interchange fees eat into your profit margins, moving money internationally is, to put it lightly, a bad experience, and so on. Stablecoins operate in a fundamentally different way, being an open-access, interoperable thing that can be sent around cheaply. Integrating them will take time, though. Financial market transformation is slower than people often anticipate, but the impact in the long run is often larger than people anticipate. There is no reason to think that pattern will break here.
As a result, the incomplete list of winners is likely to include retail and corporate users of the system for payments, asset managers who manage the funds, banks who provide rails and interconnectivity, credit, and other related services to facilitate minting, burning, and transfer between stablecoins, and others who adopt them into their system in order to disintermediate current oligopolies and walled gardens.
The losers are likely to be those oligopolies and walled gardens essentially collecting rents on deposits and for payments, especially the smaller to medium size banks who relied on 0% deposits without delivering commensurate value to end users, and smaller currencies globally who now will have to compete with the dollar at all times in the eyes of their own local citizens.
In short, buckle up, it’s going to get wild.
Will THIS Destroy the Financial System?
Like Money Market Funds (wait…)
We hear this take in various forms, from Yanis Varoufakis claiming there is a hidden time bomb inside the Genius bill due to the dodgy reserves of stablecoins (without mentioning that the very act he’s referencing bans those dodgy reserves and cleans everything up) to Barry Eichengreen attempting to compare stablecoins and their proliferation to the wildcat era of banking without pointing out that the reason for all the failures that happened are the lending and fractional reserving parts of banking (something stablecoins under Genius, again, are banned from doing).
The first tell that the fears are overblown is that the critics often cannot or will not speak honestly about what stablecoins actually are. They draw analogies to Silicon Valley Bank, Lehman Brothers, or Tether without explaining that stablecoins under Genius are actually more like VUSXX, Vanguard’s exceptionally boring (and huge) government money market fund. If they haven’t been raising the alarm about the existential systemic threat of our roughly $6T of government money market funds, it becomes an interesting question why materially similar instruments on a different electronic ledger are now suddenly a massive threat?
On the other hand, the critique that stablecoins may turn out to be preferred over standard deposits and that this may reduce the availability of credit is at least plausible. The same argument was raised, of course, about government money market funds (so here at least the comparison is apt), but our financial system has not yet cratered because of $6T of them existing. Thus, at some scale, perhaps this is a problem for stablecoins, but if we have reached $10T plus of stablecoins outstanding, they have been successful beyond the wildest expectations of most supporters and deeper questions or regulatory changes could be coming.
In short: if you think stablecoins are an existential threat to the financial system, you have to explain why it’s different than Fidelity offering a debit card attached to their gov’t MMF, which they currently already do, and it seems not to have broken anything.
DAVID: It’s also worth looking at things from a crypto-ecosystem perspective, and specifically on the assumption that the regulation of stablecoins, and the increasing sophistication and ease of use of decentralized finance products, will combine to accelerate the already rapid mainstreaming of “DeFi.” Two risky scenarios suggest themselves: First, your mind would be absolutely blown by the places a VPN, some USDC, and a dream will take you in the world of exotic DeFi markets. Broadly speaking, this can include a lot of leveraged strategies that would become perhaps increasingly subject to retail frenzies and collapses, potentially reaching systemic scale.
The other risk is more pedestrian: digital cash is different than balances on a bank’s website, in the specific sense that many such transactions are materially irreversible. This has significant implications for the cybersecurity and private key management practices of end users, and could worsen the harm caused by online predators of various sorts.
AUSTIN: David makes some good points here and this also raises another specter that I think the crypto world has not deeply considered about stablecoins: what are going to be the anti-financial crime implications of this technology going mainstream? It’s hard to think that regulators or courts are going to sit back and be like “well, working as intended” if the North Koreans get their hands on $1B of USDC, or if a user accidentally sends their life savings to a burn address. We’re going to be forced to answer hard questions about what an effective compliance and monitoring program looks like online, what obligations issuers actually have (hint: they’re likely to be way more stringent than the issuers would like), and how things like errors and escheatment work onchain.
Reality Check
For Everyone, really
Genius still has to pass the House, and while one should never doubt the ability of American politicians to snatch defeat from the jaws of victory, it is overwhelmingly likely that this becomes law.
If so, it will be remembered as one of the major financial bills in history, most likely. This is a fundamental shift away from banks having an (inadvertent, in many ways) effective monopoly on the electronic payments system in the US, and towards solving some of the problems from 2008 that still bedevil our financial system. A fight that began with the Federal Reserve refusing to charter the Narrow Bank is going to end with stablecoins providing non-fractional reserve options for payments to consumers who are not, in fact, intending to lend money at below market rates to real-estate billionaires just to be allowed to buy a coffee. This is good, and the subsequent restructuring of the American financial and banking system that will follow is likely to be pro-consumer, pro-user, and anti-insider. That is a good thing!
Similarly, it represents a shift from Congress. For years, they have been regulating in reaction to bad things happening, but this is one of the first times in decades they are regulating proactively because a good thing is happening. And when that happens, the changes are usually deep and long-lasting.
I’ll be writing more about stablecoins overall, and if you want to do the deep dive with me, you can do it. But the most important thing for everyone to remember is this: just like the internet impacting commerce, when innovations appear on the scene, they don’t go away, and things do not progress at the speed that legacy players would like them to move at. Disruption is coming, and the United States writ large and individual companies and consumers all face a choice: harness it for good by dealing with it, or get dealt with by it.
One of those is usually much more pleasant than the other.
A PUBLIC CIRCLE
What an IPO!
Just in time to be public as Genius passed, Circle (CRCL) managed to launch an incredibly successful IPO into markets as stablecoin interest reaches all-time highs. The issuer of the second largest stablecoin in the world, USDC, Circle is poised to become one of the early federal registrants in the United States.
Despite some teething issues early in the growth of the company, and a near-death experience caused by the collapse of Silicon Valley Bank (a banking crisis causing a stablecoin issue, the opposite of the narrative usually told in the press), Circle made it to their IPO, and reached approximately $67B in market capitalization at their current peak valuation as of the time of publishing this piece (June 23, 2025).
Currently there is ~$61B of USDC in the world, with Coinbase as the main hub of distribution and trading, and the successful IPO of Circle following on the acquisition of Bridge by Stripe means that the stablecoin games are just beginning. Circle’s USDC has strong brand recognition in the stablecoin space currently, but given most of the distribution (and a significant chunk of the revenue) goes to Coinbase, it’s unclear how much of this value truly resides with Circle vs. Coinbase and what the ultimate balance of power between these two companies is.
For now, everyone is playing nice, but watch the partnership between the two largest public crypto companies for signs of turbulence as their interests may continue to diverge over time.
AUSTIN: Circle had great timing to IPO before a wave of stablecoins from asset managers, banks, and the payments companies hit the ground. Crypto has largely lived in its own bubble, but Genius is the start of it going mainstream, which means the competition isn’t just crypto natives, it’s now going to be JP Morgan, Morgan Stanley, Visa, and more. That’s a totally different kettle of fish, and Circle’s path is just beginning in many ways. I have some skepticism about the current valuation, but never doubt the market’s ability to remain irrational for equally irrational periods of time.
DAVID: Circle has another obvious risk factor: its much larger, offshore competitor Tether (USDT). GENIUS is a real win for Circle here, in part because it should buttress faith in a U.S.-based product, potentially shaving a few percentage points off Tether over always-still-kinda-hovering anxiety about Tether’s backing. But on net, the competition would seem to break the opposite way - a lot of current users value Tether’s perceived independence to whatever added financial guarantees are provided by Circle’s dependence on the good graces of the U.S. government.
BANKs are still alive
JPMD finds a base
On the note of the banks coming to blockchains, JPM filed for a trademark on JPMD, intended for some sort of digital product, as well as announcing that they would be deploying the JPM deposit token on the public blockchain Base, Coinbase’s L2 on top of Ethereum.
The functionality here is somewhat less than that of a stablecoin, as with a deposit token, both the sender and the receiver must be clients of JPM (institutional clients, in this case), and the token itself represents only a claim against the balance sheet of JPM itself, thus being less generally acceptable and fungible than the design of most genius-style stablecoins. However, by putting it on a public blockchain, even in highly permissioned form, JPM can provide the exact same 24/7 real time payments and settlement functionality that used to be the hallmark of Signature Bank, Silvergate, and more.
What is unclear is just how much activity is going to move to a public blockchain affiliated with Coinbase. JPM already has extensive banking relationships with Coinbase, so it would be unsurprising if this were a very Coinbase-centric initiative and one where perhaps traders using Coinbase Institutional could benefit. Less likely would be other asset managers onboarding, or market makers and users of other chains moving a majority of their activity onto a Coinbase-controlled platform, much less stablecoins that are either affiliated with other exchanges (USDT, USDG, etc.) or those exchanges themselves.
Even so, a bank breaking out of the private blockchain only ecosystem to begin transacting on public blockchains is a material change from the exceptionally restrictive environment of 2020-2024, where even saying the phrase “public blockchain” would have you guillotined outside the HQ of any of the global megabanks. Now, we have Societe Generale launching a token on a public chain, JPM putting a permissioned deposit token on Base, and multiple banks globally (Santander, MUFG, etc.) rumored to be exploring public deposit tokens, stablecoins, and more.
Importantly, most banks are still behind in using the technology or understanding the implications of a system that replaces many forms of intermediaries with code, and the US banks in particular are at a severe disadvantage because of the embargo by the Biden Admin and Operation Chokepoint 2.0.
DAVID: It remains to be seen whether banks writ large have a lot to gain from dabbling with public blockchains. The growth of tools that let you run a $300m U.S. dollar hedge fund out of a bedroom in Malaysia (hypothetically) may not align with their fundamental business interests. After endless stops and starts (including previous incarnations of “JPMCoin”), the banks seem to share my ambivalence. But there will be winners - those who are willing to learn, transform and adapt. Moreover, the entire point of a public blockchain is that it’s public, and anyone’s liquidity inevitably grows the whole pie, so hey, go nuts.
AUSTIN: Having worked there, I have doubts the Onyx (it will never be Kinexys to me) team speaks for the entire bank. It’s important to remember that JPM is a sprawling beast, with the CIB, the retail bank, the card business, asset management, the private bank, and more all competing inside for resources, priority, and capital. Onyx/Kinexys is one small corner of the bank, and for the large US banks with trading operations in particular, the implications of stablecoins are likely to hit the markets business and asset management business as well as just the deposit side of the house. As this story unfolds, leadership at many banks are going to realize they are in an unenviable position: anyone with real talent in the blockchain space left their institution years ago (if they worked there at all), the cultural norms, compensation expectations, and behavior of good blockchain people are going to be wildly incompatible with how banks typically run their tech groups, but also if you can’t figure this out (and fast!), it could turn out to be lethal for your business. Observing these exact issues are also why I may have launched an entire advisory firm to help people figure problems like this out, and let me tell you, we’re pretty busy.
Good luck, people.
Start Running!
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