The recently-passed GENIUS Act would establish a federal framework for regulating stablecoins. The benefits are immense: Besides creating a regulatory environment for an asset, a formal regulatory regime will allow banks and large retailers to set up their own payment regimes and compete against the major credit card providers.
Few foresaw such a development when bitcoin first appeared nearly two decades ago: As one of the first adherents of cryptocurrency (I was involved with transaction testing at the inception of Bitcoin) I can sheepishly admit that I never conceived of the idea that cryptocurrencies would play such an important role.
Despite the notion that cryptocurrency’s demand is driven by people evading taxes or making some sort of illegal transaction, millions of Americans have come to embrace the asset class for reasons that have nothing to do with any conspiracy.
Financial institutions have noticed and gotten into the game themselves--mainly via the creation of stablecoins, which are tied to the dollar and can facilitate transactions. The uncertain financial environment around them--President Biden’s SEC Chair Gary Gensler had a pronounced antipathy towards any and all cryptocurrency--meant that companies were taking a regulatory risk. Passage of the GENIUS Act would all but remove that risk.
But it’s not just the banks that are embracing them. Last month Walmart and Amazon indicated that they were pursuing creating their own stablecoins with a specific purpose--namely, to disintermediate away from the credit card companies.
Total sales for each company in 2025 will approach $700 billion, with most transactions done purchased with a credit card. A product that would allow them to reduce the use of credit cards could save them billions of dollars a year, and each one appears to be intent on accomplishing this. GENIUS is a step forward for merchants and consumers, as opposed to the ill-conceived Credit Card Competition Act, which would do nothing to aid consumers, and would actually deprive them of payment choice.
This is an important development because some have tried to frame Mastercard and Visa as being duopolists in control of the credit card market, despite the fact that American Express and Discover--recently bought by Capital One--have healthy market shares and interchange costs have been steady for the last two decades, something that’s completely inconsistent with duopolistic behavior.
This bill does represent a resounding victory for consumers, and it should finally put to rest the lingering quarrel over perceived payment monopolies.
When internet shopping began, many people were wary about using a credit card online. With few exceptions, the security protocols established then are the same ones in place today, and virtually everyone has come to trust payment systems.
In 2009, Bitcoin was released with an infrastructure referred to as “trustless,” which means that it disintermediates traditional trust infrastructure and uses the network protocol instead, which is completely transparent and--thus--cannot be subject to fraud. In many ways, Bitcoin has been a wild success--with the price of a single token above $120,000 and its market cap exceeding $2 trillion--but as a payment technology, it has not delivered. Its value fluctuates wildly, making it impractical to use for most transactions.
However, the value of stablecoins like USDC and Tether have their values inextricably tied to the dollar and are much better suited for the task, and they have performed better as a payment technology. While they have worked well, the lack of regulatory surety has meant that these technologies have not been widely adopted. The GENIUS Act would allow financial institutions to build out this trust infrastructure.
The bill offers a regulatory framework for stablecoins that would engender federal oversight, greater transparency, and other consumer protections. It also means that companies who have decades of experience with fraud detection--such as existing credit card companies--can expand those offerings to new payment infrastructure.
Fraud detection is hard, scams are ever-evolving, and real-time detection infrastructure requires expertise. However, not all transactions are equal. We tend to discard receipts for coffee, but not for a central air system. With this new legislation, payment systems will come to market offering different combinations of trust infrastructure depending on the customer’s appetite for risk. This would enable a vast and expanding set of payment options for customers.
