Get Ready for Stablecoins

 For those not familiar with this financial instrument, a stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specific type of asset. For the most part, the specified asset is either fiat-backed (U.S. dollar) or commodity-backed. The structure of fiat-backed stablecoins closely resembles that of money-market funds. The issuer defends the peg of the stablecoin by holding fiat-denominated short-term assets, such as Treasury bills, commercial paper, repurchase agreements, and bank deposits. Commodity-backed stablecoins, for example, those backed by gold, are relatively rare at this point in time. A stablecoin should not be confused with a central bank digital currency (CBDC). While both are electronic digital payments using the blockchain, CBDC is issued by central banks, meaning they are a direct claim on the central bank, while stablecoin is issued by a private entity. Basically, stablecoin is a digital representation of fiat money, moving not through the arteries of traditional payment rails, but through the digital circuitry of the blockchain.

The future of stablecoins points to significant growth. As of July 2025, the stablecoin market was approximately a $270 billion market. With the passing of the Genius Act on July 18,2025, many financial movers/shakers are projecting a $3.7 trillion market by 2030. The Genius Act is a game-changer. This recent legislation provides a sturdy regulatory platform on which stablecoin ecosystems can be built. Under its provisions, stablecoin issued within the United States must maintain a full 1:1 backing of outstanding coins with high-quality reserve assets; they must publish monthly disclosures of reserve composition and undergo independent audits for larger issuers. Compared to the current bank-centric era, transfer of funds under the stablecoin system will be faster and cheaper. Domestic wire transfers can now take hours, and even be processed the following business day if the wire is initiated after 3:00p.m. Fees for domestic wires typically range between $25-$50, depending upon the commercial bank involved. International wires are processed via the SWIFT system and have to navigate a network of banks and middlemen. Fees for international wires exceed domestic wire transfer fees. Stablecoins can travel at the speed of light to anywhere in the world, for just a few cents in fees.

As the name implies, stablecoins will address the major reason why Bitcoin and other cryptocurrencies have not been adopted on a large scale in the payment system - volatility. Stablecoins are not instruments of speculation, but of settlement. Even the only cryptocurrency that makes any sense to own, Bitcoin, has weathered extreme volatility since its inception in 2009. There have been four major drawdowns of over 75% before rallying to new highs. Many investors will still favor Bitcoin as a "store of value" and as an asset to trade for speculative purposes. For payment and settlement purposes, however, Bitcoin holders will turn to stablecoins. They are comfortable and familiar with blockchain technology. Owning the stablecoins themselves won't make anyone rich, though. Each one is designed to be worth exactly $1.00, and it will remain valued at $1.00 even a decade down the pike.

As mentioned earlier, stablecoins will not be issued by Uncle Sam. They will be issued by commercial financial institutions and other private entities that have the resources to sufficiently collateralize the coins they issue. Amazon, Walmart, and other household names are already rumored to be exploring stablecoin integration. Stablecoins will be used extensively for cross-border payments, especially for cross-border remittance to less developed countries. Cross-border payments are traditionally associated with high transaction costs, prolonged processing times, and limited access for unbanked populations. Since stablecoins can be sent using a smartphone, they will supersede the banking system and facilitate faster, cheaper transactions for individuals with zero or limited access to financial institutions. Stablecoins will continue to be popular in countries dealing with hyperinflation. Due to the monetary policies implemented by these countries, average citizens experience non-stop debasement of their local currencies. The U.S. dollar has some problems, but it remains the cleanest shirt in a drawer full of dirty shirts. Thus, it remains in high demand across the world. Foreign countries and foreign banks fear the potential widespread adoption of U.S. dollar stablecoins. I would say their concerns are justified. American banks have mixed feelings about stablecoins. They see the potential for a mass exodus of deposits, which in turn could shrink banks' lending capacity. Simultaneously, they view stablecoins as a part of the future financial landscape and are developing strategies to incorporate stablecoins and monetize them in their business models.

Many people, including myself, are moderately surprised that our federal government has adopted an attitude that is favorable to cryptocurrencies, particularly stablecoins. Five years ago, I would have put the odds of the regulations incorporated in the Genius Act becoming law at something like one in one hundred. That said, when you step back, look at the big picture, and take into account the evolving macroeconomics environment, it makes perfect sense. Scott Bessent, U.S. Secretary of the Treasury, knows that crunch time is rapidly approaching for the dollar and Treasury securities. Foreign central banks have been either selling U.S. Treasuries on the secondary market or letting them roll off at maturity while hoarding more gold to supplement their reserve holdings. These actions were accelerated when the West sanctioned Russia after the 2022 invasion of Ukraine. Trump's ill-advised tariffs imposed in 2025 have also retarded the purchase of U.S. Treasuries. Then you throw in utterly reckless fiscal and monetary policies courtesy of Congress and The Fed, respectively. All of this is a recipe for disaster. Who is going to buy our debt, and at what price? Secretary Bessent's solution - besides financial repression and yield curve control - expect an exponential growth in stablecoins. There is no question that stablecoin issuers will be actively buying U.S. Treasuries to back their coins. This activity could plug the demand hole. However, unless there are serious entitlement reforms at the fiscal level, this will simply kick the can further down the road and delay the inevitable crisis.