The Promise of Stablecoin: A Cryptocurrency Meant to Be Boring

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1:22Pro Society is a weekly podcast that's part book club, part group chat for anyone who thinks Pride and Prejudice and Love Island deserve the same level of discourse. Each week, we're connecting the dots between books, the internet, and pop culture with your favorite writers, book talk creators, and plenty of overthought opinions. Yeah, I'm obsessed. I'm obsessed. Listen to Pro Society on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Bloomberg Audio Studios. Podcasts. Radio. News. Today, a victory celebration at the White House as Republican lawmakers and crypto industry leaders gathered around the president for the signing of the Genius Act.

2:04On July 18th, President Trump signed the Genius Act. It's the country's first major federal cryptocurrency legislation. A landmark bill establishing a regulatory framework for the roughly$250 billion cryptocurrency market known as stablecoin has become law. The law focuses on a type of cryptocurrency called stablecoin. It's a digital asset that's designed to maintain a stable price, as the name suggests. And it's typically backed by reserves that are held in short-term assets like short-term U.S. treasuries or cash. Emily Mason covers cryptocurrencies for Bloomberg. With the crypto industry, there's so much stuff that's really out there and odd.

2:44Like there's NFTs, there's the Bored Apes, there's Dogecoin, there's all these kind of crazy, really volatile cryptocurrencies. And stablecoin is the thing that really has kind of real use cases in the real world for real businesses and real financial institutions. Emily says the signing of the Genius Act into law marks a major and long-awaited milestone for the crypto industry. Stablecoins already make up about two-thirds of crypto transactions. And this new legislation will make it much easier for the digital assets to go mainstream. The challenge beforehand is that there were a bunch of companies and financial institutions that were sort of stablecoin curious, but they couldn't really act on that curiosity because they didn't know if it was allowed or if they were going to get in trouble.

3:33I think now is where the building can really start happening and scaling. I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, what are stablecoins exactly? How they work, why they were the focus of the U.S.'s first crypto legislation, and what their wider adoption could mean for the crypto industry, for banks, and for you and me.

4:04If you chart the price of a cryptocurrency like Bitcoin, you get a very bumpy roller coaster. It makes for a wild ride. But stablecoins, they're designed for minimal motion sickness. It can even be pegged to commodities like gold, but typically the most popular ones are pegged to the U.S. dollar. Okay, not to get all philosophical on you, but the U.S. dollar, like any other currency, it's kind of make-believe. It has value because we all believe it does. For a long time, the U.S. dollar was actually backed by gold. Real, tangible gold. That helped set the value of a dollar and keep it stable. We stopped doing that in the 1970s.

4:45But cryptocurrencies are brand new, relatively speaking. and they're not backed by a trustworthy government. Their value has been notoriously volatile. Stablecoins are supposed to be the answer to all that volatility. Because the value of most stablecoins isn't just determined by how much people are willing to pay for them on any given day, but by the value of the traditional currency they're pegged to. For every stablecoin, there's supposed to be a dollar, a yen, a U.S. treasury bond, or some tangible asset locked away in a vault, kind of like there used to be gold for the dollar. But this, of course, begs the question, if you really want something stable, why not just use a dollar?

5:30So the advantage and the demand for a stable coin is you can use it for transactions, you can use it as a payment vehicle because the price isn't volatile, but you can still get the advantages of the blockchain. Quick reminder of what the blockchain is for those of us who might need one. It's essentially a digital distributed ledger. keeps track of the transactions. I think the advantages of digital currencies that people are really excited about are, for example, it's programmable. So you can do things like, if this happens, then send this payment. And that can happen automatically with something called a smart contract, which are contracts that are automatically executed when certain conditions are met.

6:08So that's something that people are really excited about with digital currencies, and you can make that work with Stablecoin. Stablecoin, like other cryptocurrencies, currencies operates on the blockchain. So you get all those advantages while avoiding the crazy price fluctuations we were talking about earlier. Makes sense in theory. But I asked Emily, in the real world, what are companies and people actually using stablecoins for? Yeah, so if you're a big institution and you're managing entities kind of around the world and you need to be moving money quickly between them, then stablecoin's attractive for that reason, because it's instant and it's 24-7 versus other means of payments, especially cross-border, have to go through like a correspondent banking system.

6:49So it kind of gets pinged between like bank A, B, C, D until it gets to its final destination. Each of those banks charges a fee and each of those banks can add delay to the transaction actually settling and clearing. So stablecoin cuts out all of those intermediaries and it lets you kind of just send it directly from point A to point B. So that can be cheaper, that can be more efficient, it can be faster, and it can happen anytime. So that's kind of the advantage of stablecoin. It's like wiring money, turbo speed. Yes, it's like wiring money and that can have a lot of business advantages. So like if I need to pay a vendor abroad and I'm running a business in the US and the vendor is not going to release my goods to me that I need to run my business until the payment lands, if I can do that instantly with stablecoin, like that really helps me run my business more efficiently.

7:35What about consumers? Why would someone like you or I use a stablecoin? Yeah, so in the U.S., consumer payments work pretty well. Like, I personally don't really need a stablecoin in my day-to-day. But if you're living in a country where the native currency is more volatile and it's not a good store of value, then access to dollars is really appealing. And I might not be able to get a U.S. bank account very easily. So holding stablecoin is really attractive for that reason. And, like, one trend that's emerging is U.S. companies employing contractors abroad are using stablecoin to pay them. and a lot of different payroll providers are coming out with solutions to enable that.

8:14Problem is, stablecoins aren't always perfectly stable. A stablecoin can break from the currency or asset it's pegged to. Emily says this is called a de-pegging event. That's when the stablecoin isn't trading one for one for like one USD. One of the most high-profile de-pegging events happened a few years ago, and it involved one of the largest stablecoin issuers. called Circle. So Circle very briefly de-pegged when Silicon Valley Bank failed because they were holding a lot of their reserves there. Silicon Valley Bank was the favored regional bank of many California tech firms. When it collapsed in 2023, Circle suddenly lost access to a chunk of its reserves.

8:56Spooked investors sold Circle's stablecoin, and its value fell. Instead of being one-to-one with the dollar, the issuer's stablecoin briefly fell as low as 81.5 cents, before Circle reassured investors and the price bounced back. But other stablecoins haven't been able to recover. Terra Luna was a really popular stablecoin, and then that kind of had like a spiral, deep-hegging episode and is now defunct. Tether, the world's largest issuer of stablecoins, has also faced questions about just how stable its stablecoins are. In 2021, it paid about$60 million to New York and the U.S. Commodity Futures Trading Commission to settle allegations of making untrue and misleading claims, including the fact that all its coins were backed one-to-one by U.S.

9:46dollars at all times. Tether still doesn't release audited statements about the reserves that back its stablecoins. Given these concerns about transparency and reliability, I asked Emily how stablecoin issuers are supposed to make sure their currency lives up to its name. Yeah, I mean, it's keeping your reserves in a really trusted and secure place. I think the risk is always, I mean, it's similar to bank runs, right? Like, if depositors lose confidence in their bank, and they all rush to take their money out, and it's not immediately available, that's when you have a bank failure. and stablecoin issuers are similar.

10:21Like if the people holding your coin lose confidence that you're maintaining the reserves in a safe and sound way and that they're actually there and that they can actually redeem their money, then they're going to rush to redeem. And I think that's one of the big concerns is like, okay, if you have an event like that, if you have like the equivalent of a bank run on a stablecoin issuer, are you going to be able to meet those demands and those redemption requests? And I think some lawmakers were saying like, okay, if Circle takes off and all of these consumers have USDC and they're holding stablecoin balances and something like that happens and Circle fails, are we going to bail them out?

10:53Like, we don't really want to sign up for that. So that's kind of one of the concerns. And lawmakers have other concerns about stablecoins. A report from the Financial Action Task Force released in June showed that most criminal activity happening on cryptocurrency ledgers now involves stablecoins. Besides the obvious appeal of anonymity that all cryptocurrency offers, Emily says financial criminals like stability, too. Well, the advantages of stablecoins for the traditional market are the same for criminal actors, right? Like, the price is stable. So if I'm making payments, I want the currency that I use to be worth the same amount today that it was yesterday when I made the payment.

11:32So the advantages are kind of the same there. That's so interesting. So, like, above-board financial actors like stablecoin for the same reason that potentially more nefarious actors would like it. Yeah, 100%. And then on the transparency piece with the blockchain, like, it's kind of one of those things where it's like, okay, you can see all the transactions and you can see the digital wallets that were transacting, but the wallets have these really long names. It's like a bunch of letters and numbers and you're kind of like, okay, well, who is that? And then you can see all the transactions, but you don't necessarily know who's making the transactions.

12:07And that's why the off-ramping is such a big kind of conversation for criminals. It's sort of like, OK, if I've got all of this illicit money in my cryptocurrency wallet, how am I going to get it out but not tie it to myself? Because as soon as I try to transfer it to a bank account, the bank knows who I am. And so that's kind of like a challenge for them. Coming up, we dig into the Genius Act and how regulating stablecoins could push more companies to start making them and using them.

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16:09With the passage of the Genius Act, the U.S. is now officially regulating the cryptocurrency market. Well, one corner of it anyway. Bloomberg's Emily Mason says out of all the digital assets out there, stablecoins were a logical place to start. I think just like they have a really concrete use case that is kind of clear to see that maybe some of the other cryptocurrencies that are used primarily for trading activities and they're more of like, it's more of an investment vehicle than it is like for actually making payments. And the Genius Act is very specific. It's for payment stablecoin issuers.

16:42This is for making payments and like making payments easier and just better for businesses and financial institutions and potentially consumers, if that makes sense, though it's not super clear why it would in the U.S. Can you break down what exactly the regulation does? Yeah, so it kind of creates guidelines around like what the reserves need to look like. It needs to be backed one-to-one by short-term assets. It establishes the OCC as a regulator of stablecoin issuers, though the issuers can still be regulated by other state or federal regulators. The OCC is the Office of the Comptroller of the Currency.

17:15Yeah, and it's like a federal regulator. Another thing the Genius Act does is it requires issuers to abide by anti-money laundering and anti-terrorism rules. Honestly, it's pretty short. Like, that's what's kind of crazy. It's like if you read it, it's like a pretty short thing. Those are kind of the main things that we've been calling out, though. Yeah. Well, why is it important that this regulation ensures or tries to ensure that these coins are backed by actual assets? The dollar, for example, was once backed by gold, but it hasn't been for decades. Yeah. The banks are regulated super closely by different—there's a lot of different regulators, the OCC being one of them, the FDIC being another one.

17:51And then bank deposits are also insured up to$250 ,000 by the FDIC. So even though it's not backed one-to-one by gold, it's kind of got this really sturdy infrastructure around it to keep consumers and businesses safe and to keep people confident that they can transact in the dollar and they're not going to have a problem. In Stablecoin, it's the same thing. You know, you need to build this regulatory scaffolding around it so that people can use it and feel safe and don't get in trouble. Who was pushing for this regulation? Who are the legislation's main backers? I mean, the crypto industry, of course, and they put a lot of money into Trump's campaign and into his inauguration fund.

18:29They had lots of like flashy parties because they put money in for that. But so crypto companies, the Trump family is kind of like involved in the cryptocurrency industry. So they've been supporters of it. He and his sons founded World Liberty Financial. He stepped down once he became president. But World Liberty Financial issues its own stablecoin called USD1. So they are like heavily involved in this industry and in this space. According to the Bloomberg Billionaires Index, crypto ventures added at least$620 million to Donald Trump's fortune as of early July. That's one reason critics of the Genius Act, including Massachusetts Senator Elizabeth Warren, opposed the law.

19:06She was also concerned about technology companies issuing their own stablecoins. So someone like a Meta or Elon Musk with X, like he could issue a stablecoin and kind of turn these platforms into almost de facto bank accounts. And her concern was if people are storing significant amount of money as stablecoin balances, like can we really trust these companies to keep that money safe and secure? And like, are people kind of going to land in trouble? Wall Street and traditional financial institutions have their own worries. There's a lot of concern from the banking industry that if you can hold money as a stablecoin balance and you're earning 4%, then you're going to take your money out of the banking system.

19:45And then that's going to weaken the banking industry pretty significantly. You know, if businesses can hold stablecoin balances and that's a better way for them to transact, that's a better way for them to conduct business payments, then they're going to leave. That's something that they want to be ahead of. They want to be sure that they're offering a comparable product. Secretary Besson has also talked about the fact that this could, that the increased use of dollar-backed stablecoins could increase demand for U.S. treasuries and the U.S. dollar. Yeah, so, I mean, he's excited about this because it means that more people are buying treasuries to back the stablecoins.

20:18And I think the other thing that people are excited about is sort of that this is something that can help keep the dollar a really relevant and strong currency around the world. Because you'll have people in all of these other countries that want dollar access using stablecoin as a means for transacting. Big picture, what does this all mean for consumers? I think it's like it so remains to be seen, especially in the U.S., just because our payment systems today like work pretty well. So whether people are actually using Stablecoin to check out remains to be seen. Merchants would maybe really like that to happen because accepting credit cards is expensive.

20:58There's a couple caveats to that, though. For example, if you pay with Stablecoin, it's not a credit product. You have to have the money immediately available. I love paying with my credit card because I haven't been paid yet, and it's a credit, and I earn points. Stablecoin hasn't really replicated any of that yet. And there's a lot more stablecoin-linked cards coming to market. So Visa announced a partnership with Stripe to kind of enable that. So you can actually then start spending your stablecoin balance as you would with any other card. What are the biggest open questions that you still have about what this regulation might mean for the stablecoin industry and about the use of stablecoins moving forward?

21:37I'm still super interested in the adoption question. And then the other piece is this interoperability piece. Like if we have all of these different coins that are being issued, what is the mechanism for making them all work together? Right now, I have a dollar, you have a dollar. Someone else over there has a dollar and like we can all transact pretty easily. What does that look like for Stablecoin? It could also be on other blockchains. So you have to figure out ways to make those transactions all work. The big advantages of the card networks is I can walk into any store and I'm really confident that my card is going to be accepted because everyone takes Visa and MasterCard.

22:10If I'm walking in with a stablecoin balance, it's probably today impossible that I'll be able to use it. Yeah, I was going to say, like, can you do that anywhere? No, I don't think you can do that anywhere. But, like, that's why Visa has stablecoin-linked cards, so that I can spend my stablecoin balance with a Visa card. And Visa becomes kind of, and MasterCard, becomes the acceptance brand for stablecoin. And so they're kind of still trying to figure out what does that look like? Like, how do you build that network of acceptance?

22:44This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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23:50Pro Society is a weekly podcast that's part book club, part group chat for anyone who thinks Pride and Prejudice and Love Island deserve the same level of discourse. Each week, we're connecting the dots between books, the internet, and pop culture with your favorite writers, book talk creators, and plenty of overthought opinions. Yeah, I'm obsessed. I'm obsessed. Listen to Pro Society on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

24:38Download Roland Martin Unfiltered on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.