The signing of the Genius Act into federal law kicked off a new era for money and payments in the US that will have global implications. Stablecoins were already delivering faster and more efficient payments inside and across borders. Even the Bank for International Settlements acknowledged it in a recent analysis of cross-border crypto flows.
With the Genius Act, stablecoins can now also count on a uniform legal framework that brings adequate consumer protection and establishes requirements and limitations to ensure lasting stability. No more ambiguity or assumptions: if a stablecoin is compliant with the Genius Act, it’s legally sound.
But doubts persist. Despite legislative progress – or perhaps because of it – criticism has intensified. For the critics, stablecoins are not a solution to be welcomed but a threat to be contained. Let’s examine three of the most common criticisms to check how stable they are.
Wrong lessons from past crises
Some critics say that the history of money market funds in the US suggests that stablecoins, their close relative, are necessarily unstable. These critics say that we just have to look at the 2008 financial crisis and all the MMFs that failed or had to be bailed out.
Quite the contrary. Here, critics fail to distinguish between ‘government MMFs’, backed by cash and government securities – much like regulated stablecoins today (also known as ‘payment stablecoins’ under Genius) – and ‘prime MMFs’, backed not only by government securities but also by private and corporate debt.
The reality is that government MMFs were not affected during the 2008 financial crisis. Prime MMFs were the ones that suffered runs and losses. The main example is the Reserve Primary Fund, whose shares lost the stable value of $1 in September 2008, ‘breaking the buck’ due to exposure to Lehman Brothers’ commercial paper.
By contrast, as reported by the Congressional Oversight Panel created in 2008 to monitor the US Treasury’s efforts to contain the crisis, government MMFs saw inflows, preserved funding and remained stable even during the Lehman collapse. Unlike prime MMFs, government MMFs did not lead to investors’ losses, nor did they eventually need to be rescued.
Later, as uncertainty surrounding the Covid-19 pandemic increased in March 2020, prime MMFs again faced significant redemption pressures. The outflows were mirrored by large inflows into government MMFs, ‘which have historically been seen by investors as a safe haven in times of crisis’.
If the past can teach us anything, it’s that government MMF shares – which are structurally identical to regulated stablecoins – emerged unscathed from the worst financial and health crises of the last century. That’s a strong indication of what regulated stablecoins can deliver.
The ‘singleness of money’ misconception
Stablecoins also come under criticism for undermining the ‘singleness of money’ that characterises bank deposits. The basic insight behind this idea is that a dollar in a bank account should always be worth a dollar and accepted by anyone without hesitation, no matter which bank you use.
Although it sounds like a sensible idea, it has no basis in reality. Does anyone believe that a dollar deposited at Signature Bank back in March 2023 was worth the same as a dollar deposited at Chase Bank? More than that, was anyone willing to accept a Signature Bank cheque at face value back then, no questions asked?
Maybe so, but only after the Federal Reserve, along with the Treasury and the Federal Deposit Insurance Corporation, came to say that all deposits in all US banks, even in amounts above the standard FDIC deposit insurance limit ($250,000), were fully guaranteed.
If by ‘singleness of money’, critics mean ‘bailout’ for bank deposits when things get dicey, then the idea starts to make more sense. When the government steps in to make good on the promise that a dollar in any bank account is really worth a dollar, ‘singleness’ is restored.
Regulated stablecoins, on the other hand, do not need this type of support to work properly. When they are fully backed by liquid reserves that cannot be reused for other purposes, as required by the Genius Act, users can expect that issuers will have enough reserves to cover the stablecoins in circulation at all times – without the need for deposit insurance or government backing.
But even if a stablecoin issuer were to face troubles – due to a cyberattack, for example – clear capital and liquidity requirements and reasonable insolvency rules can help prevent issuers from having to hastily sell reserves at a loss. Avoiding this situation is crucial to ensuring that regulated stablecoins will not lose value and lead to losses even under extreme circumstances.
On capital and liquidity requirements, Genius mandates regulators to create rules tailored to the business model and risk profile of each issuer and balanced enough to ensure its continued operation. These rules must also take into account reserve asset diversification to avoid risk concentration.
On insolvency rules, Genius grants holders’ priority over any other creditor relative to the stablecoin reserves, which are excluded from the property of the estate. Moreover, insolvent issuers are allowed to start using stablecoin reserves early to satisfy customer redemptions more quickly and orderly.
The ‘singleness’ of regulated stablecoins is determined by robust rules that enforce a structural arrangement based on full reserves combined with several protection layers.
Numbers don’t lie
Another criticism that lacks factual support is that stablecoins are mainly used for illicit activities. Some critics go as far as to say that stablecoins cannot be considered ‘good money’ because they do not promote the integrity of the monetary system, being ‘attractive for use by criminal and terrorist organisations’.
Now the facts. According to the Financial Action Task Force, international organisations estimate that the amount of money laundered globally in one year through the traditional financial system is equivalent to 2% to 5% of global gross domestic product, or $2 to $5tn.
Does that mean that sovereign currencies are not ‘good money’ because criminals use cash and bank deposits to commit crimes? The logic behind this claim is twisted. This is a criminal justice issue, not a monetary one.
To compare, in its 2025 Crypto Crime report, Chainalysis states that $40.9bn in crypto, including stablecoins, went to illicit addresses, estimating that the total amount may be closer to $51bn given historical trends. So illicit activity with crypto amounted, in 2024, to ‘0.14% of total on-chain transaction volume’.
Combatting illicit activities – with cash, bank deposits, stablecoins or any other asset – is vital. What the numbers above reveal is that doing so with assets that circulate on transparent blockchains, like stablecoins, can be much more effective.
In the end, understanding and managing the risks associated with stablecoins is essential to unlock their full potential as regulated assets. But this outcome can only be achieved through analyses that are based on solid evidence and draw the right lessons from the past.
Marcelo Prates is Policy Director at the Stellar Development Foundation.
This article will be published in the forthcoming edition of the DMI Journal, publishing 24 September.
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