Sean Craig
3 min read
The US Senate voted last week to advance the Guiding and Establishing National Innovation for US Stablecoins Act which, because D.C. lawmakers of all stripes love cringe acronyms, stands for the GENIUS Act.
The purported stroke of brilliance would lay out the first-ever regulatory framework for stablecoins, or digital tokens pegged to the value of the dollar. It has found both Republican and Democratic support and opposition. Those who see genius in GENIUS say it takes a commonsense approach to balancing innovation and regulation. Those who think it’s a blockheaded approach to blockchain have ideologically diverse critiques, which we’ll get to. A final vote has been scheduled for tomorrow.
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The GENIUS Act, if passed, would let banks and private companies approved by federal regulators issue their own stablecoins. Those issuers would be required to back their stablecoins at all times with a 1:1 reserve of a stable asset, either cash or short-term Treasurys. They’d also be subject to some anti-money laundering laws and be required to adhere to US sanctions on foreign entities. The idea behind using the specified assets is implied in the term stablecoin: It means the tokens are more stable than most digital coins, which can exhibit dramatic price swings. Take, for example, 2022 — when bitcoin had a high of $46,000 in March and a low of around $16,000 in December.
The bill and its safeguards have managed to win the support of almost all the Republicans and 18 Democrats in the Senate. And, The Wall Street Journal reported Friday, the issue has generated enough excitement that both Amazon and Walmart are entertaining issuing their own stablecoins, a move that would allow them to sidestep billions of fees involved in cash and card transactions that involve the traditional financial system. But there are holdouts in the Senate, and their opposition comes from wildly different places:
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First, there’s Republican Senator Rand Paul of Kentucky. It’s no surprise that the libertarian-leaning lawmaker is leaning “against” the bill because he’s not convinced of the need for federal regulation of stablecoins at all. Then there’s his GOP colleague Josh Hawley of Missouri, a Silicon Valley skeptic who has called for the breakup of Big Tech companies. He has warned that the bill would let tech behemoths issue stablecoins that compete with the dollar and use them to collect inordinate amounts of data on people.
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Democratic Senator Elizabeth Warren, an expert in bankruptcy and commercial law, supports “a strong stablecoin bill” but says the GENIUS Act is not that, arguing it could trigger “the next financial meltdown” because it “folds stablecoins directly into the traditional financial system while applying weaker safeguards than banks or investment companies must adhere to.”
