The GENIUS Act: Trump bets on a stablecoin future

The US Senate has taken a huge step towards bringing stablecoins into mainstream finance, passing the GENIUS Act—the Guiding and Establishing National Innovation for US Stablecoins Act. By the end of this Nerd News, whether you support the act or not, let's agree from the outset, it's an awesome acronym!

A very stable(coin) genius

GENIUS Act supporters see efficiency gains, consumer benefits and greater US dollar dominance. Critics warn of systemic risks from a fragmented, looser banking system.

The Trump family's crypto involvement, including their $2.2 billion USD1 stablecoin, has intensified conflict-of-interest scrutiny as America positions itself as the "crypto capital of the world."

So let's dive deep into this cutting-edge currency.

What are stablecoins?

Stablecoins are cryptocurrencies pegged to assets like the US dollar, offering blockchain speed and security while remaining redeemable 1:1 for dollars.

Under the GENIUS Act, approved major retailers can issue their own tokens, effectively cutting banks and credit agencies out of transactions.

As a safeguard, issuers must back stablecoins dollar-for-dollar with traditional assets.

I'll be honest—the first time you hear about stablecoins, it sounds weird. Let's take a hypothetical Aussie example.

Hey mate ... spare me a WesCoin?

Imagine Wesfarmers released WesCoin, tied one-for-one with the Australian dollar.

Compared to credit cards, WesCoin settles instantly, costs virtually nothing to process, and keeps transaction fees in-house rather than paying Visa or Mastercard.

You could use it at Bunnings, Kmart, Officeworks and, if enough people adopted WesCoins, other retailers might choose to accept them too.

But crypto flame-outs can be spectacular.

TerraUSD (an algorithmic as opposed to fiat-backed coin) collapsed in May 2022, burning US $45 billion when confidence in both Terra and its sister token LUNA suddenly evaporated.

DJT - America's first crypto-president

The Trump family launched World Liberty Financial in September 2024, creating the stablecoin USD1 and other crypto vehicles.

After his election win, this became big business.

A recent US $2 billion Emirati deal using USD1 could net World Liberty US $80 million annually.

Separately Trump's own $TRUMP token rocketed from US $12 to $70 before his inauguration, now trading around US $9.

Critics like Senator Elizabeth Warren note the GENIUS Act fails to prevent presidential crypto-profits, only barring Congress members from such ventures.

The toss of a stablecoin

The promise:

Stablecoins eliminate banking middlemen, making merchant fees, interchange costs, wire transfers redundant while offering instant, 24/7 settlement globally.

Since stablecoins already exist but are largely unregulated, supporters argue the GENIUS Act actually reduces systemic risks.

The peril:

Unlike traditional banking with federal insurance and central bank backstops, stablecoins have no government safety net.

While they're backed by assets, if confidence collapses, there's no lender of last resort to prevent panic. Stephen Bartholomeusz, writing in the Sydney Morning Herald, warns this could return us to "19th century America where almost anyone could open a bank and issue their own currency".

The confidence game: death of a digital dollar

Crucially, Bartholomeusz notes, "Unlike a US dollar, which is trusted almost universally, there is no guarantee that a $1 stablecoin will actually be worth a dollar or be accepted by everyone".

If people lost faith in WesCoins, merchants might only accept them at 95 cents on the dollar. Or 90 cents. Or refuse them entirely.

The GFC showed how interconnected banking systems can see small problems cascade across entire sectors.

A medium-sized stablecoin collapse could trigger much wider turmoil.

Simply avoiding stablecoins yourself might not protect you from future economic malaise.

🤔 Genius move?

As Bartholomeusz muses, "only hindsight will tell whether this is such a good idea".

Not exactly confidence-inspiring analysis!

Anyway, I'm off to launch my meme coin!

-Adam S