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GENIUS Act: How Trump Just Set Crypto Up to Nuke the Economy
Stablecoins: A Loaded Gun Pointed at the Financial System
President Trump's GENIUS Act—Guiding and Establishing National Innovation for U.S. Stablecoins Act—sounds more like a recipe for disaster than innovation. The core issue? It’s letting the crypto industry more or less write its own rules, specifically when it comes to stablecoins. These supposedly "stable" cryptocurrencies, pegged to real-world currencies like the U.S. dollar, are anything but, and this act just supercharges the risk.
Think of it like this: stablecoins are being marketed as the financial equivalent of a weighted blanket, offering security in the chaotic crypto world. But in reality, they're more like a house of cards built on a shaky foundation of loosely regulated assets. The GENIUS Act aims to provide guardrails, but they're more like suggestions than actual protections, primarily benefiting the issuers while leaving buyers and taxpayers exposed.
The promise is simple: a $100 stablecoin should always be worth $100. They're supposed to offer the convenience of crypto with the stability of a bank deposit. Sounds great, right? The problem is, this stability has been consistently unreliable. We’ve already seen numerous stablecoin issuers default, wiping out billions. Terra, for example, vaporized nearly $60 billion in investor assets back in May 2022.
The Illusion of Safety and the Allure of Profit
Stablecoin advocates tout superior technology for moving money, claiming faster and cheaper international transfers. They love to compare it to sending money via Venmo, but for moving large sums across borders. That's the sales pitch, anyway. The reality, as always, is a bit more complicated.
Fraud, hacks, and theft are rampant. In the first half of 2025 alone, almost $3 billion in cryptocurrency was stolen (according to Chainalysis). And it’s not just large-scale heists. A Texas pharma CEO, trying to move $1 million in stablecoins, lost it all due to a simple typo. The recipient ghosted him, and the issuer, Circle, shrugged. Lawsuit pending, of course.
The real draw of stablecoins? Circumventing regulations. They allow users to operate within the U.S. dollar system while dodging "Know your customer" laws. The GENIUS Act tries to address this, but enforcement is weak, especially with many stablecoin operations based outside the U.S. Tether, for instance, is considering a new coin specifically designed to avoid American and EU regulations.
Currently, the stablecoin market is relatively modest—about $280 billion to $315 billion. A collapse would sting, but the financial system would likely survive. However, Citigroup analysts project that the GENIUS Act could balloon the market to $4 trillion by 2030. A default at that scale could trigger global financial shocks. How Crypto Could Trigger the Next Financial Crisis
Here's the crux of the problem: stablecoin issuers are essentially deposit-taking institutions, just like banks. But unlike banks, they aren't subject to the same rigorous safeguards. No deposit insurance, limited inspections, and audits only for the largest players. It's like a throwback to the Wild West days of American banking.
The GENIUS Act mandates that issuers back deposits with liquid assets like U.S. dollars or short-term Treasuries. And they have to provide monthly disclosures. Sounds reassuring, right? The catch is in the details.
The crypto firms that lobbied for this legislation didn’t spend millions to earn meager returns on ultra-safe, short-term assets. They're going to chase yield. The GENIUS Act allows them to invest in Treasuries with maturities up to 93 days, which offer higher interest rates but also expose them to interest-rate risk.
Imagine a scenario where interest rates rise rapidly. The value of those three-month Treasuries drops. If stablecoin holders panic and rush to cash out, the issuer might be forced to liquidate assets at a loss, triggering a run. It's a digital bank run waiting to happen. And unlike traditional banks, there's no FDIC insurance to calm the nerves.
These monthly disclosures? They're a joke. The market moves at the speed of light. A company that looks solvent in its monthly report could be insolvent a week later. The problem isn't just imperfect information; it's lagging information.
This combination—imperfect information, lax regulation, and no deposit insurance—is a recipe for disaster. The GENIUS Act might encourage wider adoption of stablecoins, but it also amplifies the potential for a catastrophic crisis. And when these issuers need quick cash, they'll dump their Treasury holdings, driving down prices and raising interest rates for everyone.
Tether, for example, already holds $135 billion in U.S. Treasuries, making it the 17th-largest holder of American debt globally. They’ve faced a bank run before, and they got into trouble by investing in riskier assets. The GENIUS Act supposedly prevents this, but it doesn't address the fundamental conflict of interest: stablecoins need to be liquid and stable, but issuers make money by investing in assets that fluctuate in value.
The Trump Family Advantage
Let's not forget the elephant in the room: Trump's personal stake. The Financial Times reported that crypto operators have funneled over $1 billion in pre-tax profits to Trump and his family in the past year. Conveniently, the Justice Department has ceased most crypto fraud investigations, and the Trump family's crypto venture, World Liberty Financial, has launched its own stablecoin, USD1. I've looked at hundreds of these filings, and the speed with which this all happened is unusual, to say the least.
A Financial Nuke Set to Detonate
The GENIUS Act is a ticking time bomb. It expands the inflow of deposits without ensuring the ability to repay them in a crisis. It’s a classic case of privatizing gains and socializing losses. Unless we treat stablecoin issuers as deposit takers and require them to pay for deposit insurance, we're headed for a financial catastrophe.