\n<\/p>\n
The Trump administration\u2019s<\/span> trade war with the world has roiled the stock market and threatens to plunge the country into a recession while jacking up the price of basic supplies.<\/p>\n But instead of taking on the financial issues dominating the headlines, the House and Senate are racing to bring stablecoins \u2014 a cryptocurrency sector few Americans have even heard of \u2014 out from the shadows.<\/p>\n The $230 billion stablecoin industry could be the first to benefit from Donald Trump\u2019s promise to make the U.S. the world\u2019s \u201ccrypto capital of the planet.\u201d<\/p>\n \u201cPassing legislation gives them a first-mover advantage to profits that are to be gained.\u201d<\/p>\n<\/blockquote>\n<\/figure>\n Industry advocates say the legislation will clear up uncertainty around the regulation of their cryptocurrencies, unleashing a new era of financial innovation. Critics of the bipartisan push warn that the legislation risks another financial crash while enriching Trump, whose family is launching a stablecoin of their own.<\/a><\/p>\n \u201cPassing legislation gives them a first-mover advantage to profits that are to be gained. We saw that with the Trump meme coin<\/a>, where a lot of people lost out but it didn\u2019t matter because Trump\u2019s platform was making fees,\u201d said Mark Hays, of the group Americans for Financial Reform. \u201cIt just seems like a witches\u2019 brew of problematic things that could lead to another crash.\u201d<\/p>\n To their proponents, stablecoins offer all the benefits of crypto without the downsides.<\/p>\n They are pegged to real-world currencies, such as the U.S. dollar. The idea is that one dollar-denominated stablecoin can always be redeemed for one dollar. Stablecoin issuers use real-world assets, such as U.S. Treasury bonds, to back their offerings.<\/p>\n Stablecoins live on blockchains \u2014 cryptographically protected digital ledgers \u2014 just like more famous tokens like bitcoin or Ether. Unlike bitcoins, they are supposed to be insulated from wild price swings by their currency pegs. That hasn\u2019t stopped some stablecoins<\/a> from collapsing.<\/p>\n Boosters say that stablecoins can make payments faster, cheaper, and more efficient. They argue that stablecoins will make it easier to send money across international borders and create opportunities for the unbanked by cutting out traditional financial institutions.<\/p>\n So far, however, they\u2019re mostly used to buy other cryptocurrencies. Crypto traders use them to cash in and cash out of more speculative tokens without paying repeated fees. Former Securities and Exchange Commission Chair Gary Gensler has likened<\/a> them to \u201cpoker chips at the casino.\u201d<\/p>\n Critics say that even though the biggest stablecoin was launched in 2014, the high-minded talk of improving the payment system has yet to produce results, and the only major users so far have been crypto traders, criminals seeking to evade money laundering laws, and people in the developing world whose own currencies face runaway inflation.<\/p>\n \u201cThey have been around for a decade. There is no doubt people have been trying to turn them into a general-purpose payment instrument,\u201d said Arthur Wilmarth, a professor emeritus at the George Washington University law school. \u201cAnd it really hasn\u2019t worked out.\u201d<\/p>\n That\u2019s what their promoters would have you believe. In reality, stablecoins have \u201cdepegged\u201d from the dollar dozens of times.<\/p>\n As Sam Bankman-Fried\u2019s fraudulent FTX exchange collapsed in late 2022, leading stablecoin issuer Tether saw its titular offering drop from the dollar by more than 2 cents<\/a>. The second-biggest stablecoin, Circle\u2019s USD Coin, dropped more than 13 cents amid revelations that many of its cash assets were jeopardized by the collapse <\/a>of Silicon Valley Bank <\/a>in 2023.<\/p>\n Then there was the notorious TerraUSD coin, an \u201calgorithmic\u201d stablecoin that was not backed by real-world assets. Its collapse took the token\u2019s supposed value of $40 billion down to zero.<\/p>\n <\/p>\n <\/p>\n Despite the promise of more concrete assets backing today\u2019s leading stablecoins, even crypto boosters have questions about Tether. The El Salvador-based stablecoin keeps only 82 percent of its reserves in cash or cash-like instruments, dividing up the rest in more volatile investments such as bitcoin. Moreover, it has never subjected its reserve to a full financial audit.<\/a><\/p>\n Tether is closely aligned with Commerce Secretary Howard Lutnick, whose former firm Cantor Fitzgerald holds much of the Tether\u2019s U.S. Treasury bonds<\/a>.<\/p>\n The very promise of stability can lead to runs on stablecoins, experts say.<\/p>\n \u201cIf people think that even a few pennies of their dollar are at risk, they are going to run,\u201d Wilmarth said. \u201cThey are not thinking, \u2018I\u2019ve put this money in the S&P 500, and I\u2019ll ride it up and down.\u2019\u201d<\/p>\n Trump has said he wants to sign a stablecoin bill by August. If it does, the legislation would be one of a handful of signature initiatives he approves this year \u2014 raising the question of why this niche topic is so important to Congress and the White House.<\/p>\n Even supporters of the idea of passing stablecoin legislation say the urgency seems to be motivated in large part by the industry\u2019s torrent of campaign spending.<\/p>\n \u201cThat has had an effect,\u201d said Tim Massad, the director of the Digital Assets Policy Project at the Harvard Kennedy School, who served as the chair of the Commodity Futures Trading Commission under Barack Obama. \u201cThere\u2019s a valid substantive reason to prioritize it, in that stablecoins exist and we have been talking about it for a while, and I think there\u2019s also some political reason why it\u2019s being prioritized.\u201d<\/p>\n Two bills pending in Congress, the STABLE Act in the House and the GENIUS Act in the Senate, would largely accomplish the same industry-friendly goals if passed.<\/p>\n Both bills would carve stablecoins out from securities law and the jurisdiction of the Securities and Exchange Commission. And both would allow some stablecoin issuers to opt for state-level regulation instead of federal, potentially letting them to shop for friendlier jurisdictions.<\/p>\n The bills would also create reserve requirements limiting what stablecoins can use as collateral, prohibiting them from investing in riskier assets such as bitcoins.<\/p>\n That is also where critics start to see problems: The Senate bill would allow stablecoins to use money market funds, which had to be bailed out by the federal government<\/a> in 2008 and 2020, as collateral. Meanwhile, both bills would ban regulators from imposing tighter reserve requirements designed to protect against market crashes.<\/p>\n <\/p>\n\n
What Is a Stablecoin?<\/strong><\/h2>\n
What\u2019s the Point?<\/strong><\/h2>\n
Are They Really \u2026 Stable?<\/strong><\/h2>\n
So Congress Is Doing What Exactly?<\/strong><\/h2>\n