GENIUS Act: Trump's Crypto Legacy is a Financial Time Bomb
President Trump's GENIUS Act, signed into law in July, is being sold as a regulatory framework for stablecoins. The idea is to bring stability to the volatile cryptocurrency market. But let's be clear: stablecoins are arguably the most dangerous part of the crypto world. Their supposed safety is an illusion, a mirage shimmering in the desert of digital finance.
Stablecoins promise a constant value relative to the U.S. dollar. A digital dollar is the pitch. But as Nobel laureate Jean Tirole points out, they "project security but can collapse under pressure." We’ve seen it before. Terra, a former top stablecoin, vaporized almost $60 billion in investor assets in May 2022. And the GENIUS Act? It doesn't fix the underlying problem; it just makes the potential fallout bigger. Citigroup analysts project the stablecoin market could balloon to $4 trillion by 2030. A default of that magnitude would send shockwaves through the entire global financial system.
The core issue is this: stablecoin issuers function as deposit-taking institutions, just like banks. But they lack the safeguards. Banks have deposit insurance, quarterly inspections, and annual audits. The GENIUS Act? It skips the inspections and only audits the largest issuers—those with over $50 billion in holdings. It's like reviving the Wild West days of American banking, where depositors were on their own.
The Act mandates that stablecoin issuers back deposits with "liquid assets like U.S. dollars or short-term Treasuries." Sounds good, right? But here's the catch.
Holding cash or very short-term assets yields next to nothing. Crypto firms didn’t spend millions lobbying for this legislation to earn basis points. They're going to chase higher returns. The GENIUS Act allows them to invest in Treasuries with maturities up to 93 days. Three-month Treasuries pay more interest – about 4% annualized as I write this (and that number fluctuates, of course). But three-month Treasuries are subject to interest rate risk. When rates rise, bond values fall.
Imagine you're holding stablecoins backed by these assets. If interest rates spike, and holders start cashing out, the issuer has to liquidate those Treasuries at a loss. This triggers a digital bank run. The first few holders get their money back. But as panic spreads, the issuer's funds dry up.
What happens when a traditional bank's holdings decline? Depositors are protected by federal insurance, which the bank pays for. Stablecoin issuers? They pay nothing for deposit insurance. Their coins are backed only by the assets they hold – assets that fluctuate wildly. And they face no real-time penalty for chasing higher returns. The monthly disclosures mandated by the GENIUS Act are a joke. In today's financial system, billions move in fractions of a second. An issuer that looks solvent in a monthly report might be bankrupt a week later.
This mix of imperfect information, lax regulation, and zero insurance is a recipe for disaster. The GENIUS Act encourages investors to hold more of their U.S. dollar assets in stablecoins. Any whiff of bad news could trigger a crisis. These issuers will dump their Treasury holdings to raise cash, tanking Treasury values for everyone.
Tether, based in El Salvador, already holds $135 billion in U.S. Treasuries, making it the 17th-largest holder of American debt. They've faced a bank run before. In May 2022, they saw $10 billion in redemptions in two weeks. The trigger? Doubts about whether Tether was actually matching its obligations with safe and liquid holdings. They were also investing in digital assets and corporate bonds. Had they failed then, the U.S. government could have ignored it. But as Tether's holdings grow, a failure to repay U.S.-dollar deposits becomes harder to ignore.
The regulatory sweet spot for a financial institution is to escape paying for insurance while gambling on an implicit "too big to fail" guarantee. That's exactly what happened with money-market funds in 2008-09. They were theoretically unguaranteed, but the government bailed them out anyway, guaranteeing $2.7 trillion in liabilities. That's the future for stablecoins, too.
The Illusion of Utility
Stablecoin advocates claim they offer superior technology for storing and moving funds. Bank transfers are slow and expensive, especially for international transactions. Stablecoins will supposedly allow coin holders to move large sums of money across borders cheaply and easily.
This is, to put it mildly, nonsense.
For lawful transactions, cryptocurrencies are too prone to fraud, hacks, and theft to be reliable. Nearly $3 billion in cryptocurrency was stolen in the first half of 2025 alone. (That’s just the reported thefts, of course.) In 2024, a pharmaceutical CEO in Texas made a single-digit error when transferring stablecoins and lost $1 million. The anonymous recipient didn't return the funds, and the issuer, Circle, disclaimed all responsibility.
Most cryptocurrency owners don't use it to buy things. An FDIC survey in 2023 found that only 3.3% of U.S. households that own crypto assets use them to send or receive payments. About 2% use them to purchase goods.
The real advantage of stablecoins is that they allow asset holders to enter the U.S.-dollar system while circumventing regulations like "Know your customer" laws. The GENIUS Act purports to apply these laws to stablecoin issuers, but only when a coin is first issued. Tracking how it's swapped after that is nearly impossible. Tether, for example, is considering a new coin that wouldn't be sold to American or EU customers, escaping "Know your customer" rules entirely. Decentralized exchanges allow users to swap stablecoins without oversight, making it easy for foreign coins to enter circulation in the U.S. The GENIUS Act requires stablecoin issuers to report suspicious activity. But most of the stablecoin architecture exists outside the U.S., making that requirement unenforceable.
The White House claims the GENIUS Act will "generate increased demand for U.S. debt and cement the dollar's status as the global reserve currency." They hope that more demand for U.S. Treasury paper will boost prices and lower interest rates. But where will this demand come from? One possibility: bad actors. Stablecoins appeal to those who want to hold U.S. dollar assets without the scrutiny of the American banking system. Estimates of the global pool of dirty or covert assets are about $36 trillion – 10% of total global wealth.
There's something deeply perverse about boosting demand for Treasury debt by making it easier for crooks to circumvent U.S. laws against terrorist financing and money laundering.
How did the GENIUS Act pass Congress? The vote wasn't close: 68–30 in the Senate, and 308–122 in the House. The explanation, according to veterans of the battle, is the ruthlessness of those who stand to benefit and the apathy of those who will be harmed. Banks, for example, convinced themselves they had nothing to fear, even though the stablecoin industry is rapidly inventing ways to bypass the prohibition on paying interest on deposits.
And this is the part of the analysis I find genuinely puzzling. Why didn't the banks fight harder? Were they blinded by the lure of issuing their own stablecoins? Bank of America, Deutsche Bank, UBS, and Goldman Sachs are exploring issuing a joint stablecoin, using their prestigious names to reassure uninsured depositors. Their prestige, I remind you, did not save them from making bad loans during the Great Recession.
The GENIUS Act was also aided by the magical thinking that surrounds cryptocurrencies. The industry's clout in Congress has been enhanced by this euphoria. Senator Elizabeth Warren, one of the few congressional opponents, focused more on President Trump's crypto-related profiteering than on the larger harm stablecoins may bring.
The Financial Times reports that crypto operators have funneled over $1 billion in pre-tax profits into the pockets of President Trump and his family in the past year. (The exact figure, according to my sources, is closer to $1.12 billion). This has yielded some perks: the Justice Department has ceased most investigations of cryptocurrency fraud and disbanded the investigating team. The Trump-family crypto venture, World Liberty Financial, has also launched its own stablecoin, USD1, ensuring that the president stands to gain if stablecoins are widely adopted.
The system-threatening problem with stablecoins is that issuers want to expand their deposits without guaranteeing they can repay them in a crisis. The Trump administration and a pliant Congress have lit a fuse to America's next financial catastrophe. Unless that fuse is snipped, the explosion is inevitable.
