Congress’s Biggest Financial Priority Is “Stablecoin.” What the Hell Is That?

The Trump administration s commerce war with the world has roiled the stock sector and threatens to plunge the country into a recession while jacking up the price of basic supplies But instead of taking on the financial issues dominating the headlines the House and Senate are racing to bring stablecoins a cryptocurrency sector scarce Americans have even heard of out from the shadows The billion stablecoin industry could be the first to benefit from Donald Trump s promise to make the U S the world s crypto capital of the planet Passing law gives them a first-mover advantage to profits that are to be gained Industry advocates say the regulation 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 ordinance risks another financial crash while enriching Trump whose family is launching a stablecoin of their own Passing law gives them a first-mover advantage to profits that are to be gained We saw that with the Trump meme coin where a lot of people lost out but it didn t matter because Trump s platform was making fees stated Mark Hays of the group Americans for Financial Improvement It just seems like a witches brew of problematic things that could lead to another crash What Is a Stablecoin To their proponents stablecoins offer all the benefits of crypto without the downsides They are pegged to real-world currencies such as the U S dollar The idea is that one dollar-denominated stablecoin can invariably be redeemed for one dollar Stablecoin issuers use real-world assets such as U S Treasury bonds to back their offerings Stablecoins live on blockchains cryptographically protected digital ledgers 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 t stopped selected stablecoins from collapsing What s the Point 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 So far however they re 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 them to poker chips at the casino Critics say that even though the biggest stablecoin was launched in 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 growing world whose own currencies face runaway inflation They have been around for a decade There is no doubt people have been trying to turn them into a general-purpose payment instrument stated Arthur Wilmarth a professor emeritus at the George Washington University law school And it really hasn t worked out Are They Really Stable That s what their promoters would have you believe In reality stablecoins have depegged from the dollar dozens of times As Sam Bankman-Fried s fraudulent FTX exchange collapsed in late leading stablecoin issuer Tether saw its titular offering drop from the dollar by more than cents The second-biggest stablecoin Circle s USD Coin dropped more than cents amid revelations that a great number of of its cash assets were jeopardized by the collapse of Silicon Valley Bank in Then there was the notorious TerraUSD coin an algorithmic stablecoin that was not backed by real-world assets Its collapse took the token s supposed value of billion down to zero Despite the promise of more concrete assets backing in the current era s leading stablecoins even crypto boosters have questions about Tether The El Salvador-based stablecoin keeps only 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 Tether is closely aligned with Commerce Secretary Howard Lutnick whose former firm Cantor Fitzgerald holds much of the Tether s U S Treasury bonds The very promise of stability can lead to runs on stablecoins experts say If people think that even a limited pennies of their dollar are at pitfall they are going to run Wilmarth noted They are not thinking I ve put this money in the S P and I ll ride it up and down So Congress Is Doing What Exactly Trump has noted he wants to sign a stablecoin bill by August If it does the statute would be one of a handful of signature initiatives he approves this year raising the question of why this niche topic is so major to Congress and the White House Even supporters of the idea of passing stablecoin act say the urgency seems to be motivated in large part by the industry s torrent of campaign spending That has had an effect explained Tim Massad the director of the Digital Assets Agenda Project at the Harvard Kennedy School who served as the chair of the Commodity Futures Trading Commission under Barack Obama There s 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 s also specific political reason why it s being prioritized Related Crypto Sweep Puts Congress on Notice Vote With Us or We ll Come After You With Millions 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 Both bills would carve stablecoins out from securities law and the jurisdiction of the Securities and Exchange Commission And both would allow chosen stablecoin issuers to opt for state-level regulation instead of federal potentially letting them to shop for friendlier jurisdictions The bills would also create reserve requirements limiting what stablecoins can use as collateral prohibiting them from investing in riskier assets such as bitcoins That is also where critics start to see problems The Senate bill would allow stablecoins to use money industry funds which had to be bailed out by the federal regime in and as collateral Meanwhile both bills would ban regulators from imposing tighter reserve requirements designed to protect against industry crashes Neither bill goes far enough to outlaw foreign issuers of dollar-denominated stablecoins potentially creating an incentive for issuers to move offshore and outside of U S regulation according to Massad And neither provides the Treasury Department with broad-enough authority to crack down on illicit finance he announced Moreover both bills would allow non-banks to enter the stablecoin arena Wilmarth noted opening the door for Big Tech companies such as Meta or Amazon to get in on the action Not only Big Tech but Big Finance he noted They would have every piece of information about you if they could run all your basic financial transactions through their systems I think that creates enormous concerns and problems If Big Tech does enter the stablecoin realm critics warn a run on their coins could lead to a larger financial contagion You re linking the commercial sector of our financial sector to our financial sector Wilmarth announced Mark Twain supposedly declared You can put all your eggs in one basket but you better watch that basket Now Trump Has a Stablecoin Last month members of the Trump family reported that they were getting in on the stablecoin competition themselves through their World Liberty Financial venture The firm is helmed by the sons of Trump s Middle East envoy Steve Witkoff Like other stablecoins it promises to be backed by assets such as U S Treasury bonds with regular audits of its reserves Massad noted he could think of no similar move by other presidents Jimmy Carter put his peanut farm in a trust but peanut farm regulation wasn t exactly a big issue back then Massad announced I think it s totally inappropriate for the president or members of his family to be launching a stablecoin or otherwise engaging in crypto businesses Is This Thing Going to Pass The announcement of the Trump stablecoin didn t just add another promising conflict of interest to the mountain of existing ones It also alarmed crypto industry figures who had been counting on stablecoin act as a surefire win this Congress after spending hundreds of millions of dollars on politicians in both major parties during last year s voting process cycle Both bills seemed destined to attract widespread bipartisan sponsorship until the Trumps entered the picture Instead at a House Financial Services Committee meeting earlier this month Rep Maxine Waters D-Calif the ranking member of the committee denounced the Trumps and disclosed she could not be involved in passing a bill that would further enrich them The House bill still passed out of committee with advocacy from six Democrats giving it a bipartisan sheen The Senate s stablecoin bill is co-sponsored by Republican Sens Bill Hagerty Cynthia Lummis and Tim Scott along with Democratic Sens Angela Alsobrooks and Kirsten Gillibrand The post Congress s Biggest Financial Priority Is Stablecoin What the Hell Is That appeared first on The Intercept