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Today a victory celebration at the White House as Republican lawmakers and crypto industry leaders gathered around the President for the signing of the Genius Act.

On July eighteenth, President Trump signed the Genius Act.

It's the country's first major federal cryptocurrency legislation.

A landmark bill establishing a regulatory framework for the roughly two hundred and fifty billion dollar cryptocurrency market known as stable coin, has become law.

The law focuses on a type of cryptocurrency called stable coin.

It's a digital asset that's designed to maintain a stable price, as the name suggests, and it's typically backed by reserves that are held in short term assets like short term US treasuries or cash.

Emily Mason covers cryptocurrencies for Bloomberg.

With the crypto industry, there's so much stuff that's really out there in odd like there's NFTs, there's the board apes, there's dogecoin, There's all these kind of crazy, really volatile cryptocurrencies.

And stable coin is the thing that really has kind of real use cases in the real world for real businesses and real financial institutions.

Emily says the signing of the Genius Act into law marks a major and long awaited milestone for the crypto industry.

Stable Coins already make up about two thirds of crypto transactions, and this new legislation will make it much easier for the digital assets to go mainstream.

The challenge beforehand is that there were a bunch of companies and financial institutions that were sort of stable coin curious, but they couldn't really act on that curiosity because they didn't know if it was allowed or if they were going to get in trouble.

I think now it's where the building can really start happening and scaling.

I'm Sarah Holder, and this is the big take from Bloomberg News today.

On the show, what are stable coins exactly work, Why they were the focus of the US's first crypto legislation, and what their wider adoption could mean for the crypto industry, for banks, and for you and me.

If you chart the price of a cryptocurrency like bitcoin, you get a very bumpy roller coaster.

It makes for a wild ride.

But stable coins they're designed for minimal motion sickness.

They can even be pecked to commodities like gold, but typically the most popular ones, they're packed to the US dollar.

Okay, not to get all philosophical on you, but the US dollar, like any other currency, it's kind of make belief it has value because we all believe it does.

For a long time, the US dollar was actually backed by gold, real tangible gold that helps set the value of a dollar and keep it stable.

We stopped doing that in the nineteen seventies.

But cryptocurrency are brand new, relatively speaking, and they're not backed by a trustworthy government.

Their value has been notoriously volatile.

Stable coins are supposed to be the answer to all that volatility, because the value of most stable coins isn't just determined by how much people are willing to pay for them on any given day, but by the value of the traditional currency they're pegged too.

For every stable coin, they're supposed to be a dollar again, a US Treasury bond, or some tangible asset locked away in a vault, kind of like there used to be gold for the dollar.

But this of course begs the question, if you really want something stable, why not just use a dollar.

So the advantage in the demand for a stable coin is you can use it for transactions.

You can use it as a payment vehicle because the price isn't volatile, but you can still get the advantages of the blockchain.

Quick reminder of what the blockchain is for those of us who might need one.

It's essentially a digital district needed ledger.

Keeps track of the transactions.

I think the advantages of digital currencies that people are really excited about are, for example, it's programmable, so you can do things like if this happens, then send this payment, and that can happen automatically with something called a smart contract, which are you know, contracts that are automatically executed when certain conditions are met.

So that's something that people are really excited about with digital currencies, and you can make that work with stable coin.

Stable Coin, like other cryptocurrencies, operates on the blockchain, so you get all those advantages while avoiding the crazy price fluctuations we were talking about earlier.

Makes sense in theory, but I asked Emily, in the real world, what are companies and people actually using stable coins for.

Yeah, so if you're a big institution and you're managing entities kind of around the world, and you need to be moving money quickly between them.

Then stable coin's attractive for that reason because it's instant and it's twenty four to seven versus other means of payments, especially cross border, have to go through like a correspondent banking system, so it kind of gets pinged between like bank ABCD until it gets to its final destination.

Each of those banks charges a fee, and each of those banks can add delay to the transaction actually settling and clearing.

So stablecoin cuts out all of those intermediaries and it lets you kind of just send it directly from point A to point B, so that can be cheaper, that can be more efficient, it can be faster, and it can happen anytime.

So that's kind of the advantage of stable coin.

It's like wiring money turbo speed.

Yes, it's like wiring money, and that can have a lot of business advantages.

So like if I need to pay a vendor abroad and I'm running a business in the US and the vendor is not going to release my goods to me, that I need to run my business until the payment lands.

If I can do that instantly with stable coin, like that really helps me run my business more efficiently.

What about consumers, Why would someone like you or I use a stable coin.

Yeah, so in the US, consumer payments work pretty well.

Like I personally don't really need a stable cookin in my day to day.

But if you're living in a country where the native currency is more volatile and it's not a good store of value, then access to dollars is really appealing, and I might not be able to get a US bank account very easily.

So holding stable coin is really attractive for that reason.

And like, one trend that's emerging is US companies employing contractors abroad are using stable coin to pay them, and a lot of different payroll providers are coming out with solutions to enable that.

The problem is stable coins aren't always perfectly stable.

A stable coin can break from the currency or asset it's pegg two.

Emily says.

This is called a depegging event.

That's when the stable coin isn't trading one for one for like one USD.

One of the most high profile depegging events happened a few years ago and it involved one of the largest stable coin issuers called Circle.

So Circle very briefly depegged when Silicon Valley Bank failed because they were holding a lot of their reserves there.

Silicon Valley Bank was the favored regional bank of many California tech firms.

When it collapsed in twenty twenty three, Circle suddenly lost access to a chunk of its reserves.

Spooped investors sold Circle stable coin, and its value fell.

Instead of being one to one with a dollar, the issuer's stable coin briefly fell as low as eighty one and a half cents before Circle reassured investors and the price bounced back, but other stable coins haven't been able to recover.

Kar Luna was a really popular stable coin, and then that kind of had like a spiral deepegging episode and is now defunct.

Tether, the world's largest issuer of stable coins, has also faced questions about just how stable its stable coins are.

In twenty twenty one, it paid about sixty million dollars to New York and the US Commodity Futures Trading Commission to settle allegations of making untrue and misleading claims, including the fact that all its coins were backed one to one by US dollars at all times.

Tether still doesn't release audited statements about the reserves that back it's stable coins, given these concerns about transparency and reliability.

I asked Emily how stable coin issuers are supposed to make sure their currency lives up to its name.

Yeah, I mean, it's keeping your reserves in a really trusted and secure place.

I think the risk is always.

I mean it's similar to bank runs, right, Like if depositors lose confidence in their bank and they all rush to take their money out and it's not immediately available, that's when you have a bank failure.

And stablecoin issuers are similar, Like, if the people holding your coin lose confidence that you're maintaining the reserves in a safe and sound way and that they're actually there and that they can actually redeem their money, then they're going to rush to redeem.

And I think that's one of the big concerns is like, Okay, if you have an event like that, if you have like the equivalent of a bank run on a stable coin issuer, are you going to be able to meet those demands and those redemption requests?

And I think some lawmakers were saying, like, Okay, if circle takes off and all of these can consumers have USDC and they're holding stable coin balances and something like that, happens and circle fails, are we going to bail them out?

Like, we don't really want to sign up for that.

So that's kind of one of the concerns.

And lawmakers have other concerns about stable coins.

Report from the Financial Action Task Force released in June show that most criminal activity happening on cryptocurrency ledgers now involves stable coins.

Besides the obvious appeal of anonymity that all cryptocurrency offers, Emily says, financial criminals like stability too.

Well.

The advantages of stable coins for the traditional market are the same for criminal actors, right, Like the price is stable, So if I'm making payments, I want the currency that I used to be worth the same amount today that it was yesterday when I made the payment, So the advantages are kind of the same there.

That's so interesting.

So like above above board, financial actors like stable coin for the same reason that potentially mortifarious actors would like it.

Yeah, one hundred percent.

And then on the transparency piece with the blockchain, like it's kind of one of those things where it's like, Okay, you can see all the transactions and you can see the digital wallets that were that were transacting but the wallets have these really long names.

It's like a bunch of letters and numbers, and you're kind of like, okay, well who is that?

And then you can see all the transactions, but you don't necessarily know who's making the transactions.

And that's why the off ramping is such a big kind of conversation for criminals.

It's sort of like, Okay, if I've got all of this illicit money in my cryptocurrency wallet, how am I going to get it out?

But not tie it to myself?

Because as soon as I try to transfer it to a bank account, the bank knows who I am, and so that's kind of like a challenge for them.

Coming up, we dig into the Genius Act and how regulating stable coins could push more companies to start making them and using them.

With the passage of the Genius Act, the US is now officially regulating the cryptocurrency market, well one corner of it, anyway.

Bloomberg's Emily Mason says, out of all the digital assets out there, stable coins were a logical place to start.

I think just like they have a really concrete use case that it's kind of clear to see than maybe some of the other cryptocurrencies that are used primarily for trading activities, and they're more of like it's more of an investment vehicle than it is for actually making payments.

And the Genius Act is very specific.

It's for payment stable coin issuers.

This is for making payments and like making payments easier and just better for businesses and financial institutions and potentially consumers if that makes sense, though it's not super clear why it would in the US.

Can you break down what exactly the regulation does?

Yeah, So it kind of creates guidelines around like what the reserves need to look like, it needs to be backed one to one by short term assets.

It establishes the OCC as a regulator of stable coin issuers, though the issuers can still be regular by either state or federal regulators.

The OCC is the Office of the Controller of the Currency.

Yeah, and it's like a federal regulator.

Another thing the Genius Act does is it requires issuers to abide by anti money laundering and anti terrorism rules.

Honestly, it's pretty short, Like that's what's kind of crazy.

It's like, if you read it, it's like a pretty short thing.

Those are kind of the main things that we've been calling.

Out though, Yeah, well, why is it important that this regulation ensures or tries to ensure that these coins are backed by actual assets.

The dollar, for example, was once backed by gold, but it hasn't been for decades.

Yeah.

The banks are regulated super closely by different there's a lot of different regulators, the OCC being one of them, the FDIC being another one, and then bank deposits are also ensured up to two hundred and fifty thousand dollars by the FDIC.

So even though it's not backed one to one by gold, it's kind of got this really sturdy infrastructure around it to keep consumers and businesses safe and to keep people confident that they can transact in the dollar and they're not going to have a problem.

And stablecoin it's the same thing.

You know, you need to build this regulatory scaffolding around it so that people can use it and feel safe and don't get in trouble.

Who was pushing for this regulation?

Who are the legislation's main backers?

I mean the crypto industry of course, And they put a lot of money into Trump's campaign, into his inauguration fund.

They had lots of like flashy parties because they put money in for that, so crypto companies.

The Trump family is kind of like involved in the cryptocurrency industry, so they've they've been supporters of it.

He and his sons founded World Liberty Financial.

He stepped down once he became president, but World Liberty Financial issues its own stable coin called USD one, So they are like heavily involved in this industry, in this space.

According to the Bloomberg Billionaire's Index, crypto ventures added at least six hundred and twenty million dollars to Donald Trump's fortune as of early July.

That's one reason critics of the Genius Act, including Massachusetts Senator Elizabeth Warren, opposed the law.

She was also concerned about technology companies issuing their own stable coins.

So someone like a Meta or Elon Musk with X like he could issue a stable coin and kind of turn these platforms into almost de facto bank accounts.

And her concern was if people are storing significant amount of money as stable coin balances, like can we really trust these companies to keep that money safe and secure, and like are people kind of going to land in trouble?

Wall Street and traditional financial institutions have their own worries.

There's a lot of concern from the banking industry that if you can hold money as a stable coin balance and you're earning four percent, then you're going to take your money out of the banking system, and then that's going to weaken the banking industry pretty significantly.

You know, if businesses can hold stable coin balances and that's a better way for them to transact, that's a better way for them to conduct business payments, then they're going to leave.

That's something that they want to be ahead of.

They want to be sure that they're offering a comparable product.

Secretary Busson has also talked about the fact that this could that the increased use of or backed stable coins could increase demand for US treasuries and the US dollar.

Yeah, so, I mean he's excited about this because it means that more people are buying treasuries to back the stable coins.

And I think the other thing that people are excited about is sort of that this is something that can help keep the dollar really relevant and strong currency around the world, because you'll have people in all of these other countries that want dollar access using stable coin as a means for transacting.

Big picture, what does this all mean for consumers.

I think it's like it so remains to be seen, especially in the US, just because our payment systems today like work pretty well, so whether people are actually using stable coin to check out is kind of remains to be seen.

Merchants would maybe really like that to happen because accepting credit cards is expensive.

There's a couple of caveats to that though.

For example, if you pay with stable coin, it's not a credit product, you have to have the money immediately available.

I love paying with my credit card because you know, I haven't been paid yet and it's a credit and iron points.

Stable Cooin hasn't really replicated any of that yet, and there's a lot more stable coin linked cards coming to market, So Visa announced a partnership with Striped to kind of enable that so you can actually then start spending your stable coin balance as you would with any other card.

What are the biggest open questions that you still have about what this regulation might mean for the stable coin industry and about the use of stable coins moving forward.

I'm still super interested in the adoption question.

And then the other piece is this interoperability piece, Like if we have all of these different coins that are being issued.

What is the mechanism for making them all work together?

Right now, I have a dollar, You have a dollar, someone else over there has a dollar, and we can all transact pretty easily.

What does that look like for stable coin?

It could also be on other blockchains, so you have to figure out ways to make those transactions all work.

The big advantages of the card networks is I can walk into any store and I'm really confident that my card is going to be accepted because everyone takes Visa and MasterCard.

If I'm walking in with a stable coin balance, it's probably today impossible that I'll be able to Yeah.

I was gonna say, like, can you do that anywhere?

No, I don't think you can do that anywhere.

But like, that's why Visa has stable cooin linked cards so that I can spend my stable coin balance with a Visa card, and Visa becomes kind of an and MasterCard becomes the acceptance brand for stable coin, and so they're kind of still trying to figure out what does that look like, Like how do you build that network of acceptance.

This is the big take from Bloomberg News.

I'm Sarah Holder to get more from the big Take and unlimited access to all of bloomberg dot com.

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