Stablecoins have rapidly emerged as a major theme within the crypto industry. They are bringing the attention of all legislators and FDIC partners to them. These unique digital assets are intentionally created to be stable in value. Typically backed 1:1 by a fiat currency such as the US dollar, these digital assets offer the perfect combination of blockchain innovation and time-tested dollar stability. This unique combination has opened the floodgates to utility use cases for crypto, bringing practicality and accessibility, and therefore, mainstream appeal to the masses.

Additionally, stablecoins have played a major role in the crypto markets. As a result, they provide a reliable and stable medium of exchange, a powerful store of value, and the economic bridge between traditional finance (TradFi) and crypto’s decentralized future. Unlike volatile cryptocurrencies like Bitcoin or Ethereum, stablecoins aim to minimize price fluctuations, making them suitable for everyday transactions, remittances, and as a safe haven during market downturns. The stablecoin market, as a result, continues to grow by leaps and bounds, further highlighting their increasing importance in the digital economy.

Yet the growth of stablecoins specifically has drawn more attention than usual from regulators across the globe, especially in the United States. At the same time, we applaud Congress for seriously considering the risks and benefits of digital assets. They are doing it with an eye towards creating a predictable regulatory framework that encourages innovation, protects consumers and protects the financial system. Lawmakers are wrestling on Capitol Hill to understand what this new, fast-moving technology means. This has resulted in an unprecedented level of attention on stablecoins.

Why the Sudden Congressional Interest?

There are a number of reasons for the abrupt uptick in Congressional interest in stablecoins. Stablecoins are becoming the currency of choice for payments. Their promise to disrupt traditional payment systems as well as their threat to financial stability have created a perfect storm of rising interest and concern. Preventing bank runs Regulators have been closely monitoring stablecoins to ensure that they maintain sufficient reserves backing each one. Furthermore, they require that issuers adhere to anti-money laundering (AML) rules and other regulatory provisions.

Indeed, one of the greatest fears here is the unknown creation of systemic risk. The obvious answer is the sheer scale of dollar-denominated liabilities generated offshore through stablecoins. Yet this could easily become systemically important, as was the historical case with Eurodollars’ original challenges. If a large stablecoin issuer were to fail, it could trigger a wider financial crisis, impacting both the crypto market and the traditional financial system. Regulators have moved to help assuage this risk. Specifically, they are contemplating requiring stablecoin issuers to be chartered banks or to hold their reserves as central-bank deposits.

An area of great concern for lawmakers is the possibility of stablecoins being used for nefarious purposes. These activities feature both money laundering and terrorist financing. Other stablecoins provide a degree of anonymity that makes it difficult to trace transactions and identify sending and receiving parties. This aspect is what makes them so alluring to criminals. Congress is understandably looking at ways to improve transparency and traceability in the stablecoin ecosystem as a means of addressing these risks.

  • Pros:
    • Faster and cheaper payments
    • Financial inclusion
    • Innovation in financial services
  • Cons:
    • Systemic risk
    • Money laundering
    • Consumer protection

The Trump Family's Crypto Connection

Yet another layer of complexity to the stablecoin debate is the participation of the Trump family in the industry. Donald Trump Jr. and Eric Trump, the oldest two sons of Donald Trump, have launched a new investment company. They recently rolled out the launch of a cool new digital currency! Understandably, this move has drawn concern from the environmental community and alarm over a potential conflict of interest. Consequently, it can make it more difficult to garner bipartisan agreement on crypto-related legislation.

The Trump family actually has a very direct connection to World Liberty Financial (WLF). This company has allegedly raised more than $500 million in various token sales, adding significant scrutiny about their role. According to a joint investigation by Reuters, Donald Trump, Donal Trump Jr. and Eric Trump are all intimately connected to WLF. Their direct involvement raises some very important questions. What would happen to regulatory outcomes from these decisions if the Trump family’s personal financial interests in crypto were involved?

A big hurdle Even though some Democrats have raised alarms over the Trump family’s entrance into the stablecoin industry, they may not get very far. They fear it will create daunting conflicts of interest and stymie bipartisan attempts to impose order on the cryptocurrency Wild West. The political polarization created by the Trump family further complicates matters. It complicates the already arduous task of writing robust, sound, and forward-looking stablecoin legislation. Underlying this engagement up a rope is interest and concern — a dynamic factor to monitor as Congress keeps haggling over the fate of stablecoins.

Stablecoins: A Threat to Big Tech?

Stablecoins are deeply intertwined with regulatory and political considerations. Their ascent has deep meaning for us all that we cannot overlook. These digital assets have the potential to democratize financial services and disrupt centralized, traditional payment networks. They’ll boost competition in the financial services space and foster new opportunities for fintech innovation. They also present regulatory challenges for Big Tech companies, which are playing a larger role in the crypto space.

Stablecoins have the potential to upend traditional payment networks through providing faster, cheaper, more efficient payment networks. By eliminating intermediaries and leveraging blockchain technology, stablecoins can facilitate near-instantaneous transactions with lower fees compared to traditional payment systems. This trend could certainly present a problem for incumbents such as Visa and Mastercard. Consumers and businesses alike are increasingly using stablecoins to facilitate their daily transactions.

What’s more, stablecoins have the potential to open new avenues for private sector innovation to deliver financial services. This added competition would help break the currently siloed dominance of Big Tech companies in the financial services sector. Companies like Facebook (now Meta) have explored using stablecoins to power their own payment systems, potentially bypassing traditional banks and financial institutions. This would foster greater competition and innovation across the financial services sector, which would be a win–win for consumers and businesses.

Stablecoins could be a stepping stone to new fintech innovations, including decentralized lending and borrowing. These platforms make it easy for anyone to borrow and lend stablecoins directly. They do this by cutting out traditional financial intermediaries, offering more flexibility and improved access to capital. This is especially true for individuals and small businesses that the legacy banking system largely excludes. It could improve financial inclusion and reduce the unbanked population. The regulatory landscape will be at the center of determining how these innovations will develop. It will shape how long Big Tech is able to maintain their monopolistic stranglehold in the wake of these disruptive technologies.