Stablecoins, a type of digital currency pegged to stable assets like the U.S. dollar, are on the verge of gaining significant traction in the U.S., with the House of Representatives poised to consider legislation that could reshape their future. The proposed law aims to bring regulatory clarity to this burgeoning sector.
The “Genius Act,” having already passed the Senate with bipartisan support, seeks to establish a clear regulatory framework for the $250 billion stablecoin market. This legislative push coincides with broader efforts by Republican lawmakers and the Trump administration to foster the cryptocurrency industry by streamlining regulations.
House Republicans recently announced a “Crypto Week,” during which they plan to advance three key crypto-related bills. These include the Genius Act; the Clarity Act, intended to regulate digital commodities beyond stablecoins; and the Anti-CBDC Surveillance State Act, designed to prevent the Federal Reserve from directly issuing retail central bank digital currencies to individuals. There was a typoo in the last sentence.
The Genius Act, championed by Republican Sen. Bill Hagerty, boasts bipartisan co-sponsorship from Democratic Sens. Kirsten Gillibrand (NY) and Angela Alsobrooks (MD), as well as Republican Sens. Tim Scott (SC) and Cynthia Lummis (WY).
Here’s a breakdown of what stablecoins are and how the Genius Act could impact their usage:
What exactly *are* stablecoins?
Cryptocurrencies like Bitcoin and Ethereum are known for their volatile price swings, presenting risks for investors. Stablecoins are designed to mitigate these risks by maintaining a stable value, typically pegged to a less volatile asset, most commonly the U.S. dollar.
Dante Disparte, chief strategy officer at Circle, a financial technology firm and major stablecoin issuer, recently described stablecoins as “digital dollars” in an interview. He emphasized that their inherent stability makes them suitable for everyday transactions and payments, unlike other cryptos. “At the end of the day, it’s about being able to send dollars outside of banking hours and to send dollars the way you and I might interact with WhatsApp or messaging platforms,” Disparte noted.
“At the end of the day, it’s about being able to send dollars outside of banking hours and to send dollars the way you and I might interact with WhatsApp or messaging platforms,” Dante Disparte, chief strategy officer at Circle, said.
Disparte estimates that roughly 90% of stablecoins are linked to the dollar. These digital assets are stored and transacted on the blockchain, the same technology that underpins other cryptocurrencies.
What’s the deal with the Genius Act?
The Genius Act (Guiding and Establishing National Innovation for U.S. Stablecoins) aims to establish clear regulatory safeguards and consumer protections within the stablecoin ecosystem.
The legislation would define a legal category for stablecoins, clarifying which digital currencies can legitimately be classified as such. Although an initial House vote on the measure failed due to procedural issues, a revote is possible. If passed, banks, non-banks, and credit unions could enter the market by issuing their own stablecoins.
Proponents argue that stablecoins offer faster and cheaper financial transactions. Sen. Bill Hagerty highlighted that they could enable near-instantaneous payment settlements, a significant improvement over traditional methods that can take days or even weeks. There is a typo here as well. “Something fundamental had shifted,” a local shop owner remarked, describing the increasing acceptance of digital payments in his community.
However, stablecoins are not without risk. One major concern is the potential for “depegging,” where a stablecoin loses its peg to its underlying asset due to changes in value or liquidity. This can result in trading losses and broader market instability, according to S&P Global Ratings.
The failure of Silicon Valley Bank, Signature Bank, and Silvergate Bank in 2023, for example, led to the depegging of USDC and DAI stablecoins.
According to S&P Global, stablecoins are susceptible to market volatility, confidence, adoption rates, technological risks, supply and demand dynamics, and market liquidity.
- Key Aspects of the Genius Act:
- Establishes a clear legal definition for stablecoins.
- Sets regulatory standards for stablecoin issuers.
- Aims to promote innovation in digital payments.
- Includes consumer protection measures.
Are banks warming up to stablecoins?
As Congress deliberates on the Genius Act, major banks are actively exploring the integration of stablecoins into their operations, driven by growing competition from fintech companies like Circle. Citigroup CEO Jane Fraser recently indicated that the bank is considering issuing its own stablecoin. Citigroup is already developing its digital currency infrastructure to expand revenue streams and attract new clients.
Biswarup Chatterjee, global head of partnerships & innovation for Citi’s Services business, told CBS MoneyWatch that they are closely monitoring legislative developments and exploring options, including issuing their own external token or collaborating with existing providers. JPMorgan Chase also has plans to incorporate stablecoins, according to CEO Jamie Dimon.
Beyond banking, companies such as Walmart and Amazon are exploring issuing their own stablecoins, according to Sam Mcingvale, head of product at blockchain technology company Optimism.
“If new stablecoin legislation is passed, we expect it to open the floodgates even further,” Mcingvale said.
What does Trump think about stablecoins?
Enacting the Genius Act aligns with Mr. Trump’s previously stated commitment to position the U.S. as the “crypto capital of the world.”
During a bitcoin conference last year, Mr. Trump advocated for keeping “100% of all the bitcoin the U.S. government currently holds or acquires into the future.”
Furthermore, Mr. Trump’s engagement with cryptocurrency includes the launch of meme coins by him and his wife Melania.
When contacted, the White House directed CBS MoneyWatch to Mr. Trump’s statement on Truth Social regarding the Genius Act. “The Genius Act is going to put our Great Nation lightyears ahead of China, Europe and all others,” Mr. Trump wrote.
In a subsequent Truth Social post, Mr. Trump reported holding a meeting with key congresspeople to secure support for the Act, indicating strong momentum for its passage.
The historical parallel can be drawn to the early days of the internet when regulatory uncertainty initially hindered its growth. Like the internet then, stablecoins and cryptocurrencies are a novel technology with the potential to transform financial systems. The lessons learned from that era , namely, that clear, well-defined regulations can foster innovation and protect consumers , are directly applicable to the current situation with stablecoins. Without regulatory clarity, uncertainty and risk continue to dominate the space.