The GENIUS Act is a proposed bill that regulates one type of cryptocurrency called stablecoins, a $200 billion part of the multi-trillion-dollar cryptocurrency system. The bill’s name stands for Guiding and Establishing National Innovation for U.S. Stablecoins, and its goal is to create a regulatory framework for stablecoins that could allow them to be more widely used in everyday transactions.
But critics say that the bill as written does an end run around existing bankruptcy law, setting the stage for an eventual massive bailout of the cryptocurrency sector, the key proponents of the bill.
Stablecoins are a type of cryptocurrency whose value is tied to another currency, most often the U.S. Dollar. Unlike most cryptocurrencies such as Bitcoin that fluctuate wildly, a stablecoin is intended to maintain a fixed value to a real target currency. So, it may function much like a digital dollar or a digital euro, holding its value at that fixed price over time.
For example, the most popular stablecoin is Tether, and it can be purchased and sold for $1 at any time, day or night. Tether is actually the third largest crypto coin by market capitalization after Bitcoin and Ethereum.
Stablecoins act like a reserve currency in the crypto world, and they help speed transactions rather than trades needing to work through the slower process of a traditional cash deposit. When traders sell other cryptos, they typically receive the proceeds as a stablecoin, often Tether. When they’re ready to buy a crypto coin, they can pay with their stablecoins, and stablecoins offer a fixed reference price when traders go to make a trade, so they know exactly what they’re paying. Stablecoins such as Tether act as a fundamental medium of exchange for crypto.
To maintain the value of stablecoins, crypto issuers must hold reserves that back up the valuation. But stablecoins typically don’t have $1 cash sitting in a bank for every $1 stablecoin they’ve issued.
For example, Tether holds a collection of fairly liquid assets such as U.S. Treasurys but also alternative assets such as Bitcoin and gold. Importantly, only a tiny amount of a stablecoin’s reserves may be held as actual cash, as opposed to bonds and other assets.
The GENIUS Act is promoted by the cryptocurrency industry, and the act’s goal is to make crypto safe and accessible for daily transactions and to give people confidence to use it.
Right now, cryptocurrency is virtually useless as currency since almost no retailers accept it in payment. So, the act focuses on some measures that maintain the value of stablecoins and otherwise attempt to make the entire stablecoin system, um … actually stable and less risky. That’s key because if a stablecoin can’t maintain its peg to a real currency, then it’s apt to blow up, as happened with the stablecoin TerraUSD in 2022.
