Scott Melker discusses what US regulation — such as the GENIUS Act — brought to the table in terms of better understanding crypto’s relationship to the dollar and enabling clearer frameworks and restrictions.
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Dollarization is not new. People have stored physical dollars under mattresses and conducted business in dollars for generations, but physical cash is difficult to acquire, transport and use online. Foreign dollar bank accounts require access to banks. Stable coins remove both barriers.
This is dollarization at internet speed. The United States sees stronger dollar influence. The country on the other side may see capital flight with a better user interface. That’s why this cannot be reduced to a victory lap about innovation.
A technology can empower individuals and destabilize institutions at the same time. In fact, that’s usually what disruptive technology does.
There’s also a problem for the crypto purist celebrating stable coin adoption as proof that decentralized finance won. Most major stable coins are not decentralized money. They are privately issued claims on reserves managed by centralized companies.
The token may travel on a public blockchain, but the issuer can freeze addresses, block transfers, and comply with lawful government orders.
That is not a hidden defect. Under the emergent regulatory system, it is part of the design. Washington may not need to operate a retail central bank digital currency if regulated private issuers distribute digital dollars while enforcing American rules. Stable coins can provide much of the reach of a digital dollar without putting the Federal Reserve in the business of managing everyone’s wallet.
This creates a strange new form of public private monetary power. The state supplies the currency, the Treasury securities and the legal framework, private issuers supply the tokens and keep much of the income generated by the reserves. Blockchains supply the global rails, exchanges and wallets supply the users.
It’s innovative, but it is not permissionless in the way Bitcoin is permissionless.
A stable coin can be self-custodied and still remain an obligation of an issuer. You may control the wallet, but you do not control the asset backing the token or the rules written into its contract. That distinction becomes most important during a crisis.
A stable coin is only as stable as its reserves, its redemption mechanism, its banking partners, its technology, and the market’s confidence in the issuer. We learned that from Terra, although Terra was an algorithmic experiment with nothing close to traditional one-for-one backing.
We learned it again when USDC briefly broke its peg in 2023 because Circle had billions of dollars trapped at Silicon Valley Bank. Regulation can make reserve-backed stable coins safer.
It cannot make them identical to dollars held directly at the Federal Reserve, and it cannot eliminate operational risk, cyber risk, liquidity risk, or human error. It can also create a new concentration of power.
If two or three private issuers provide much of the world’s digital cash, their compliance decisions become globally significant. A frozen address may represent criminal proceeds, but it may also remind every honest user that this version of money still has an administrator. The better stable coins become at extending the dollar system, the more they inherit the dollar system’s politics.
