Sep 2, 2025, 10:34 AM ETInterview, Podcast

After a Summer of Stablecoins, What’s Next?

The U.S. "Genius Act" establishes the first federal regulatory framework for stablecoins, mandating full backing by high-quality assets, primarily U.S. Treasury bills.
The legislation creates a supervisory system mirroring national banks, subjecting issuers to oversight by one of three national bank regulators or a state banking agency.
Stablecoin issuers must now adhere to reserve requirements, disclosure schedules (monthly), and annual external audits, with assets held in specific, monitored locations.
The regulatory clarity is expected to end the market monopoly of USDC by encouraging mass-market adoption and new issuers via national bank charters.

Dollar Savings Products: A primary use case involves non-U.S. savers in volatile or inflation-ridden economies (e.g., Argentina) holding dollar equivalents to escape local currency devaluation.
Remittances: Stablecoins facilitate cross-border transactions by bypassing domestic currency conversions, potentially saving users the ~7% fees associated with traditional services like MoneyGram or Western Union.
Universal Interoperable Payments: Stablecoins aim to break down silos between fragmented payment wallets (e.g., Apple Cash, Starbucks), offering a single, fungible, fee-efficient payment instrument.
Commercial Implementation: Banks intend to issue proprietary tokens primarily to lower funding costs and enhance customer stickiness through discount and loyalty programs, rather than to compete globally with Tether or USDC.

Brian Brooks (Pro-Regulation): Argues that the "continuous supervision" of national banks provides greater safety than periodic audits, noting that regulators and auditors have historically adapted to new technologies as they scale.
Barry Eichengreen (Skeptical): Warns that the proliferation of privately issued currencies threatens the "singleness of money," creating risks that different stablecoins will trade at varying prices due to redemption concerns.
Historical Precedents: Eichengreen cites the "Wildcat Banking Era" (1830s–Civil War) and the 2008 Money Market Fund "breaking the buck" as examples where full collateralization failed to prevent runs and contagion.
Taxpayer Liability: A key disagreement centers on liability; unlike bank deposits, stablecoins lack a specific deposit insurance fund, raising concerns that taxpayers may be on the hook for bailouts if issuers fail.
Asset Quality Risks: Concerns exist that "high-quality" collateral (e.g., bank deposits at SVB) can degrade quickly, as seen when major stablecoins held reserves at failing institutions.

Eichengreen's Position: Prefers CBDCs to preserve the singleness of money and ensure central bank backing, noting that U.S. political opposition to centralized power makes CBDC adoption unlikely in the near term.
Brooks' Position: Favors private stablecoins on ideological grounds, arguing they avoid government control over individual transactions and rely on decentralized consensus rather than a single authority.
Market Outlook: Despite the debate, the consensus is that stablecoins will continue to proliferate due to current legislative momentum.

Brooks' Projection: Predicts stablecoins will become a material, significant source of demand for U.S. Treasuries as non-U.S. entities increasingly hold dollar equivalents; a conservative estimate suggests billions of dollars in new demand if even a fraction of the global adult population adopts them.
Eichengreen's Projection: Views the demand as "marginal," estimating a potential $2 trillion in stablecoin circulation against $30 trillion in existing Treasuries, unlikely to radically alter required rates of return.
Systemic Risk on Treasuries: Eichengreen warns that runs on stablecoins could force rapid liquidation of Treasury holdings, introducing new volatility into the market.