Act of GENIUS or Blockheaded Bill? Congress Considers Stablecoins

Two Sides of the Stablecoin

The GENIUS Act, if passed, would let banks and private companies approved by federal regulators issue their own stablecoins. Those issuers would be required to back their stablecoins at all times with a 1:1 reserve of a stable asset, either cash or short-term Treasurys. They’d also be subject to some anti-money laundering laws and be required to adhere to US sanctions on foreign entities. The idea behind using the specified assets is implied in the term stablecoin: It means the tokens are more stable than most digital coins, which can exhibit dramatic price swings. Take, for example, 2022 — when Bitcoin had a high of $46,000 in March and a low of around $16,000 in December.

The bill and its safeguards have managed to win the support of almost all the Republicans and 18 Democrats in the Senate. And, The Wall Street Journalreported Friday, the issue has generated enough excitement that both Amazon and Walmart are entertaining issuing their own stablecoins, a move that would allow them to sidestep billions of fees involved in cash and card transactions that involve the traditional financial system. But there are holdouts in the Senate, and their opposition comes from wildly different places: 

• First, there’s Republican Senator Rand Paul of Kentucky. It’s no surprise that the libertarian-leaning lawmaker is leaning “against” the bill because he’s not convinced of the need for federal regulation of stablecoins at all. Then there’s his GOP colleague Josh Hawley of Missouri, a Silicon Valley skeptic who has called for the breakup of Big Tech companies. He has warned that the bill would let tech behemoths issue stablecoins that compete with the dollar and use them to collect inordinate amounts of data on people.
• Democratic Senator Elizabeth Warren, an expert in bankruptcy and commercial law, supports “a strong stablecoin bill” but says the GENIUS Act is not that, arguing it could trigger “the next financial meltdown” because it “folds stablecoins directly into the traditional financial system while applying weaker safeguards than banks or investment companies must adhere to.”

Warren noted that, in the past, some stablecoins have failed to maintain their pegs: The 2022 crypto crash, which led to Bitcoin’s fall that year, was caused by the collapse of Terraform Labs’ Terra/Luna “algorithmic” stablecoin, which cost investors $42 billion. One 2023 study that analyzed 60 stablecoins found every single one of them had de-pegged from its underlying asset at least once.

A Bond Boon? ARK Invest argued, in a report earlier this month, that a turbocharged stablecoin would be good for the Federal Reserve by encouraging companies to become more active in holding US Treasurys. That, the investment firm said, could help offset the sharp decline in foreign holdings of US debt in recent years, which has accelerated amid the tariff pressures created by the Trump administration.