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EARLIER THIS SUMMER, Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins Act—GENIUS, for short. This sounds obscure, but it’s a story worth following. The GENIUS Act’s purpose is to promote the growth of—and to regulate—a new type of financial instrument known as a stablecoin.
What’s a stablecoin? It’s similar to a cryptocurrency but differs in one important way: Bitcoin and other cryptocurrencies have exhibited wide price swings. That makes them interesting to investors but less-than-useful as currencies for everyday transactions. Just ask Laszlo Hanyecz, an early adopter of bitcoin.
Back in 2010, Hanyecz paid for a Papa Johns pizza order with 10,000 bitcoin. At the time, this translated to about $40, an appropriate price. But today, those same 10,000 bitcoin would be worth more than $1 billion. That’s why the term “cryptocurrency” has become somewhat of a misnomer. Even in the past 12 months, bitcoin has nearly doubled in value. It’s also experienced steep declines. In 2022, it lost more than 60%. This volatility makes bitcoin and other cryptocurrencies impractical as currencies.
Stablecoins intend to solve that problem. To be useful as currencies, they promise to maintain a perfect 1-to-1 exchange rate with the U.S. dollar. But that raises a question: If stablecoins never deviate from a fixed price of one dollar, what purpose do they serve? Why not simply hold dollars in the bank?
Stablecoins turn out to have potentially broad appeal.
For consumers, the pitch is that stablecoins offer a better way to transfer funds than any other existing method. Credit and debit cards, for example, are ubiquitous, but they aren’t practical for payments between individuals.
PayPal, Venmo and Zelle allow for person-to-person payments, but they too have limitations: They require some setup, and they cap the size of transactions, making them infeasible for things as basic as rent payments.
Wire transfers are quick, but they’re cumbersome, and many banks charge fees to send—and sometimes even to receive—wires, making them impractical for day-to-day use. Most people use wire transfers infrequently, if ever.
While it can be cumbersome to transfer funds within the U.S., it’s even more costly and complicated to send funds internationally. Services like Xoom (owned by PayPal) have made this easier, but these services carry fees, and also charge a “spread” on the currency conversion. By contrast, stablecoins would have no fees and no conversion costs.
Because stablecoins aren’t encumbered by any of those limitations, they represent a potentially promising alternative for consumers.
The government is also interested in stablecoins. The reason is interesting. A White House press release notes that “the GENIUS Act requires 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries,” then adds: “By driving demand for U.S. Treasuries, stablecoins will play a crucial role in ensuring the continued global dominance of the U.S. dollar as the world’s reserve currency.”
That’s stablecoins’ primary appeal to the government’s. Because stablecoins need to be backed on a one-for-one basis by either U.S. dollars or U.S. Treasury securities, stablecoins have the potential to generate new global demand for U.S. currency. And proponents argue that stablecoins have the potential to turn the dollar into a currency that can be used in everyday transactions worldwide. While this vision may sound like a stretch, it need not be all-or-nothing. If the GENIUS Act can increase demand for Treasury bills or extend the reach of the dollar by any amount, that would be positive for the U.S. economy.
A third constituency that’s very interested in stablecoins: retailers. For businesses that accept credit cards, processing fees average about 2%. For years, retailers have battled with Visa and MasterCard, which are responsible for setting these rates, but without much luck. It’s no secret how profitable the credit card business is. Visa’s gross profit margin is about 98%, and its net margin (after all expenses and taxes) averages about 53%. By way of comparison, Microsoft—itself an extremely profitable company—has net margins in the neighborhood of 35%.
For this reason, there’s speculation that large retailers, including Amazon and Walmart, will accept stablecoins and might even issue their own coins. Shopify, a company that provides back-end shopping cart tools for millions of ecommerce sites, already allows retailers on its platform to begin accepting one type of stablecoin.
Part of the motivation for the GENIUS Act is that stablecoins don’t have an unblemished history. Most notably, in 2022, a coin called TerraUSD, which was supposed to be pegged to the dollar, crashed disastrously, losing most of its value. The new rules, which require that each stablecoin have a dollar of collateral, should help consumers avoid this outcome. Terra failed because it didn’t have that collateral.
Should you try stablecoins? The good news is that there’s no rush. Since stablecoins are intended to maintain a fixed value, there’s no risk of missing out on price appreciation. For that reason, consumers can afford to take it slow, and watch and wait to see how things develop.
One reason I’d take it slow is stablecoins may not be entirely without risk. Even though they’re intended to remain pegged to the dollar, that link isn’t guaranteed. Why? Short-term Treasurys, which stablecoins are permitted to hold as collateral, can lose money. Yes, they’re generally very stable but, as we saw in 2022, when interest rates spiked up, these bonds lost about 4%. So there is a scenario in which stablecoins could lose value. That’s why I’d wait for the bugs to be worked out before committing more than a small amount to stablecoins.
That said, I see this new technology as a positive development. Whether it’s stablecoins or something else, advances like this may help put downward pressure on the high fees that continue to be stubbornly embedded in the traditional credit card system.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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In a way, isn’t the US dollar kind of a stablecoin? While we have paper currency and coins, the US dollar is now based on a promise by the government that is basically that it will support the dollar (see caveat in the next sentence), give it “full faith and credit”, and pay someone in bills and coins when they want to convert some part of their digital dollar account into something tangible. (Of course, the government will only pay what it determines the dollar is worth at any given time, and while it pays interest on its debt, it also allows the dollar to become less valuable over time with ongoing inflation.) All that said, I don’t see a stablecoin as offering much more to me, and arguably it will offer a lot less. There is a lot more risk, and none of that “full faith and credit” promise from the richest nation on earth. I’ll watch from the sidelines and hope the new structures don’t lead to a broader collapse.
While I think you’re on the right track with your thoughts about stable coin, I wish you wouldn’t have started with the old bitcoin story about the pizza. Conflating bitcoin and cryptocurrency is already a big issue among the general public – most could not tell you the difference between the two. And yet, they are as different as saying you have a car versus saying you have a Ferrari. Bitcoin and stable coins are both types of cryptocurrency, but they are as different as a 1957 Chevy is from a 2025 Tesla. As such, between these two types of crytocurrency, one has nothing to do with the other.
I take a long view toward stablecoin, which, btw, is being trialed by a couple of different countries. When a stable coin is issued by a central government, it’s called a Central Bank Digital Currency (CBDC). While there are several digital dollar coins out there (USDC, for example), as of now none are CBDCs backed by the US government. You can view a complete list of coins and their total market capitalization here. At the top of the list is Tether, with over $164B market cap.
One of the keys to making a CBDC stablecoin work in the US is to dispel the fear and uncertainty around it, which is why I think it’s important for people to understand how it’s different from meme coins or bitcoin.
When I was working as a startup advisor at a San Francisco fintech accelerator I wrote a future scenario about CBDCs and stablecoins and what they might look like in 2048. It’s a quick read here:
https://www.nex3.com/blog/2020/06/10/banking-in-2048-story-from-the-future
Mastercard and Visa embrace the stablecoin. I won’t count them out.
https://www.paymentsdive.com/news/mastercard-visa-play-down-stablecoin-threat/753338/
How can you trust the issuer of the stablecoin? If there are many players, there are sure to be many fraudsters.
After reading this, I still don’t understand what stablecoins are and how they work. The only really useful thing they appear to do is get around the high transaction fees of credit cards. But so does Zelle. I own a rental and manage it on apartments dot com. If the tenant pays their rent with an ACH transfer there is no fee for either of us. Setting up the ACH was quick and easy.
I understand the point that a legit stablecoin could make things simpler and cheaper for retailers by eliminating the credit card middlemen. But experience suggests that any short term savings will be minimal as new costs / providers enter the field. Someone will provide beneficial services for retailers (equipment, money management, etc.) for a lower, but significant fee in the new world.
Fantastic article. Thank you for explaining stablecoins in a way that is easy to understand.
Stablecoin is another avenue for government access to your financial transactions. Like credit cards. Probably obvious, but unmentioned thus far.
The underground economy in the US is estimated to be between 6 and 12% of GDP. If you ever give cash to a kid to cut your lawn, you are a part of it. Criminals love it. The government has spent a lot of time and energy trying to reduce it. Forcing Venmo and PayPal to report transactions above a threshold and issue 1099s for these is part of that effort. Personally, I like Zelle, because it doesn’t have to do this.
Even today, the government has no way to track the purchase and sale of Bitcoin. It is only when you have to deposit your profit from a sale of Bitcoin into a bank account to pay bills that they have a chance to catch some of these transactions. That is part of the reason that banks have to report any cash transaction above $9999.99.
Once a reliable stablecoin system is in place where there is no middleman (bank) the underground economy will really take off. And, while the government continually audits large companies, it depends largely on voluntary compliance to collect income taxes. If you happen to be a wealthy person who holds high public office and want to help yourself avoid future income taxes, you would act to limit the funding of the IRS so that they don’t have enough staff to provide a reasonable number of audits to get compliance, and then support the development of stablecoins to allow untraceable transactions. Once a lot citizens figure out that taxes are only for the non-rich we may become like Italy where cheating on taxes is part of how you live.
With the IRS audit dept being gutted, we are almost there.
The IRS headcount hovered around 75K employees from 2015 to 2020. Then increased to 103K employees by Jan 2025. The recent IRS workforce reductions decreased the headcount by 26% to about 76K employees, back to previous levels.
AI, technology updates, and simplifying the tax code could help with work efficiency. For example, increasing the standard deduction in 2017 resulted in the percentage of taxpayers itemizing decreasing from 30% to the current 10%.
But it seems like for every simplification in the tax code we get two added complexities.
No kidding. And then there are the temporary tax deductions (e.g., tips, overtime, senior bonus, and car loan interest), which are in effect for 2025-2028.
Thanks Adam for a great article. I don’t pretend to fully understand stable coins. I’ve been studying bitcoin since 2022 and have a much better understanding of how it works. When we think about their uses, however, I suggest we look at it through prisms other than a U. S. citizen living in a heavily banked U. S. where Zelle, or Venmo, or ACH transactions are readily available in the dollar. Outside the country, stable coins are becoming very useful as a much more fungible form of the dollar and is a life saver for many. Bitcoin is used as a currency and store of value in many countries to avoid currency debasement. Think Argentina, Nigeria, Venezuela, etc. If you read the Bitcoin White Paper, a very short document, you’ll find that the intent of bitcoin was to provide a way to transfer value, peer to peer, cashless, via an electronic network avoiding the necessity of a trusted third party, such as a bank, to run the ledger. In part, it was a response to the financial crisis of 2008 in which many banks went under (Wachovia and Wash Mutual to name a few), and many others such as Bank of America, Citibank, etc. had to bailed out. We often forget that our banking system was collapsing in Sept and Oct of 2008 and without the great lender of last resort, the U. S. govt, we may have fallen into a deep depression. The trusted third party, it turned out, could not be trusted. Bitcoin is now seen by many as more of a store of value, a form of digital gold. I can only imagine what the next 16 years will bring. I believe that bitcoin, as a store of value, will continued to steadily increase, stable coins will become very useful for transferring funds throughout the world, and Ethereum may become the backbone on which much of financial world “tokenizes” its assets. I encourage those of you who may have dismissed bitcoin outright, or who simply haven’t investigated it, to take a good look at it. It’s quite ingenious in many ways and it’s not going away so you might as well understand it regardless of whether you choose to buy it.
How much energy consumption and how many computers will be needed for the computational resources required to maintain the blockchain on a torrent of small transactions. Can this be distributed to smart phones and if it is, are we ready for our batteries to be drained every time we buy a cup of coffee? (I know, HumbleDollar readers don’t buy coffee, they brew it at home at 1/10 the cost.) How will stable dollars be practically scaled up?
This is another example of conflating bitcoin with cryptocurrencies and blockchain. Bitcoin transactions include mining new bitcoin versus just exchanging them for goods and services. Mining new bitcoin is very energy intensive because bitcoin is built on the principle of Proof of Work.
Most stablecoin transactions, on the other hand, are based on Proof of Stake. These are much less energy intensive and highly scalable. More info here: https://datadrivenlab.org/climate/blockchain-energy-consumption-debunking-the-misperceptions-of-bitcoins-and-blockchains-climate-impact/
I am stunned by how many charities, which are desperate for every dollar they can get, make it difficult to donate by any form except online which takes out a large chunk for fees, both by the processor and by the credit card. I want to send Zelle, ACH, or paper check so they get every penny of the donation, but they don’t make this easy, or have no information on it at all. Would stable coin make this any better?
I take QCDs from my IRA. The charities I support have no trouble accepting the resulting checks. If the website didn’t provide an address I would have doubts about supporting them in the first place.
At my bank, overnight money transfers using the Automated Clearing House (ACH) system are free, safe, and secure. Same for transfers to and from Fidelity via ACH. The system likely wasn’t built to scale like a Venmo or PayPal though.
Wire transfers use an older tech which is faster but more expensive, and has more risk of loss from mis-directed funds.
It will be interesting to see how well stablecoin blockchain tech scales. In banking a security issue or a bank failure is upsetting. So is a transaction that doesn’t complete in a timely way. All three can happen with any new tech like this.
Thanks Adam for an interesting and well-written article. Does this take the “investment character” out of the picture? If stable coins were backed by Treasuries, would the owner receive some or all of the passive income or yield? It will be interesting to see how this plays out.
I hope it takes the “investment character” out of the picture, and treats them as “exchangeable dollars” just like physical U.S. dollar bill currency, and I think should be allowed to earn interest just like dollars deposited into bank accounts do today.
I think the idea of a formal U.S. Government implementation of stablecoins is a GREAT idea!
I think the law specifically forbids paying interest on stablecoins though some are already creating ways to circumvent it.
Very interesting and informative.
Thanks for another great read. One interesting counterpoint I feel worth mentioning is that those high credit card fees aren’t just about Visa and MasterCard’s huge profits. A big reason for the fees is the very generous rewards system embedded in the US credit card culture compared to the EU model—the cashback, airline miles, and points. Essentially, the fees merchants pay directly fund these generous rewards, making the situation a lot more complicated than just a battle between retailers and the credit card companies. It’s a system where consumers, banks, and merchants are all tied together. If stablecoins were to replace credit cards, it would likely mean the end of these generous US rewards.
Thanks for the clear explanation. I’m a banker and I still struggled to understand what “Stablecoin” and what good is it?
Stablecoins would be easily transferable electronically, the same as dollar bills are easily transferable in person.
Thank you Adam. Very interesting and finally something cryptocurrency related I understood; not cryptic.