Stablecoins are the big thing right now; it seems that every government, institution, and large bank is either issuing or figuring out how to integrate or legislate for them.
Just this month, Jamie Dimon confirmed that JPMorgan (NASDAQ: JPM) is ramping up activity in stablecoins, Citigroup’s (NASDAQ: C) CEO revealed it is exploring its own coin, and Bank of America (BoA) (NASDAQ: BAC) signaled plans to launch one when regulations shed light on how to do things legally.
BoA and the other banks didn’t have to wait long. On July 17, the U.S. House passed the GENIUS Act. It lays down the rules for the growing stablecoin sector, meaning banks and institutions now have the clarity they need.
Payment giants like Visa (NASDAQ: V), Mastercard (NASDAQ: V), and PayPal (NASDAQ: PYPL) have signaled strong support for stablecoins, too. PayPal integrated Arbitrum, while Mastercard has begun supporting Circle (NASDAQ: CRCL) transactions. Ripple tapped BNY Mellon (NASDAQ: BK) as its reserve custodian. RLUSD now has over $500 million in circulation.
That’s a lot of movement in a few short weeks, and it all comes down to regulatory clarity. The GENIUS Act provides that in the world’s largest economy, the stablecoin race is on.
Bank of England Governor sounds the alarm
However, not everybody is optimistic about stablecoins. The Governor of the Bank of England (BoE), Andrew Bailey, warned the world’s largest banks not to issue them in a recent interview with The Times.
Bailey highlighted how stablecoin reserves must be ring-fenced, and therefore, cannot be used for bank lending activities. He’d prefer banks to stay with tokenized deposits that act as blockchain-based equivalents to conventional deposits.
Funds being set aside for stablecoins isn’t just bad for banks — it’s also bad for the economy. A credit crunch (or reduction) will have a negative impact on economic growth, and banks could face solvency issues if deposits run too low.
Despite Bailey’s reservations, the Bank of England will be one of two stablecoin regulators in the U.K. and will exclusively supervise the largest issuers.
Why is the Trump administration so keen on stablecoins?
At different times, Treasury Secretary Scott Bessent and Secretary of Commerce Howard Lutnick highlighted how stablecoins will play a key role in the Trump administration’s plan for USD dominance. Lutnick’s firm, Cantor Fitzgerald (NASDAQ: ZCFIIX), is a 5% stakeholder in Tether, but he divested before entering government.
While it will likely continue to exist in some form, the aforementioned GENIUS Act will cause problems for the world’s largest stablecoin issuer. Just as the MiCA Regulations drove it out of Europe, the GENIUS Act could do the same in the United States.
Why so? The Act requires 1:1 backing with USD and Treasuries, but Tether has always claimed it is backed by multiple assets. Large issuers must submit to annual independent audits, but Tether has never agreed to one.
Worse still for Tether, stablecoin issuers are considered financial institutions under the Bank Secrecy Act. Under those rules, they must implement robust AML/KYC checks and compliance with OFAC sanctions. That won’t bode well for a company that prefers to operate from the shadows.
The GENIUS Act gives an 18-36 month window for compliance. The countdown is on for Tether to overhaul its structure or exit the U.S. market.
Watch | Spotlight On: Centi Franc — the truly stable stablecoin
