It’s been a heady year in 2025 for stablecoins, the cryptocurrency that is pegged 1:1 to a fiat reserve currency such as the U.S. dollar. The biggest push came last July with the passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), which gives stablecoins comprehensive legal and regulatory cover. The Act takes effect upon the earlier of January 18, 2027, or 120 days after final regulations are issued by federal regulators.
“We are only at the beginning of the stablecoin story,” said Max Harris, senior fellow at the Wharton Initiative on Financial Policy and Regulation (WIFPR), and director of research at Finance at Wharton. “The GENIUS Act — bringing stablecoins into the regulatory perimeter — was a landmark step, but implementing the law and making sure regulations evolve as the market changes will be critical in shaping the future of stablecoins and minimizing the risks posed to financial stability and integrity.”
Harris shared those perspectives as the moderator of a recent panel discussion titled “Stablecoins After the GENIUS Act,” which was part of the annual Wharton Future of Finance Forum, held in January. The event was hosted jointly by the Harris Family Alternative Investments Program and WIFPR.
The panelists were Michael Barr, a member of the Federal Reserve’s Board of Governors; Timothy Massad, a senior research fellow at Harvard Kennedy School and former chairman of the U.S. Commodity Futures Trading Commission; and Corey Then, vice president and deputy general counsel of global policy at Circle, issuer of the second-largest stablecoin by market capitalization.
Although specific rules based on the Act are yet to be written, stablecoins are now at the cusp of a new phase of growth. The adoption of stablecoins had been tepid in the early years after their introduction in 2014, but they have experienced dramatic growth over the last five years in transaction volumes and market capitalization, which was just shy of $315 billion at last count. While much of the transactions volume remains confined to the crypto ecosystem, stablecoins are starting to integrate with the traditional financial system.
Circle and Tether are the two biggest issuers of stablecoins, called USDC (U.S. dollar coin) and USDT (U.S. dollar Tether), respectively. They account for more than 80% of the total stablecoin market supply, according to BVNK, a provider of stablecoin infrastructure.
Circle’s Then noted that the GENIUS Act has already brought big gains for the stablecoin industry: Daily transaction volumes have been on a “hockey stick” growth curve, soaring from $1 trillion before the Act to $4 trillion after the Act was passed. “Circle internal data shows USDC is being used in real-world activity and payments,” he said. “We are in the early innings.”
According to Barr, the key issue the GENIUS Act addresses is that stablecoins are to be backed 1:1 with short-term liquid assets, primarily Treasuries. The Act requires issuers to maintain 100% reserve backing with liquid assets such as the U.S. dollar or short-term Treasuries and provide monthly disclosures of the composition of reserves.
“For stablecoins to be stable and effective, you must be able to redeem at par on demand in a range of stressful conditions,” Barr said, and this ability depends in large part on the composition of reserves.
Strict marketing rules under the Act aim to protect consumers from nefarious actors in the financial markets, according to a White House fact sheet. The Act also permits states to set up their own regulatory regimes for stablecoin issuers so long as they are “substantially similar” to the federal framework.
“The GENIUS Act is the end of the beginning, not the end of regulation.”— Corey Then
Gaps in the GENIUS Act
According to the panelists, the GENIUS Act is not perfect. Barr pointed to shortcomings in it and the potential for unintended consequences. Some elements of the Act aren’t tight enough, such as types of permitted repo transactions as reserves — e.g., where one leg is a foreign currency or is a bitcoin, he said. His other concerns were around checks for anti-money laundering under the Bank Secrecy Act (BSA) to help prevent terrorist financing. He also pointed to the room for regulatory arbitrage because many federal and state regulators are involved.
Harvard’s Massad listed other gaps in the GENIUS Act. It regulates stablecoins similarly to banks, “but that is not enough,” he said. “There’s no intermediary preventing fraud or breaking sanctions.” The government has outsourced that role to banks, he said.
The Act prohibits stablecoin issuers from paying interest to avoid it becoming too similar to a bank deposit. But Massad pointed to a gap where it doesn’t prevent crypto exchanges from paying yield, a matter of intense debate in Washington right now as legislators work on market structure legislation for cryptocurrencies.
According to Massad, “the future of money is less about stablecoins per se than about whether we’re transferring value on various blockchains and what sort of blockchains will those be.” In his view, that latter issue is underdiscussed. “Are we using blockchains as rails for movement of value, and what will they look like? How do they address risk of illicit transfers, privacy issues, and operational issues?” he asked.
“For stablecoins to be stable and effective, you must be able to redeem at par on demand in a range of stressful conditions.”— Michael Barr
Adoption Curve of Stablecoins
Stablecoins are seeing increasing interest in being used for payments, which widens their initial role in providing liquidity on cryptocurrency exchanges. They are also in the initial phases of “adoption at an institutional scale,” said Then. One use for stablecoins is as collateral for derivatives transactions with exchanges or futures commission merchants in the commodities markets.
Barr identified other potential uses for stablecoins, such as for trade finance and Treasury cash management for large multinational corporations. They could also find opportunities in the markets for remittances, where barriers to using them are coming down, he noted.
Stablecoins could also be used for settlement of other tokenized assets, and as rails for credit cards and cross border payments, Massad said. But many issues will drag the adoption of stablecoins for payments, he noted. For instance, it is not possible to reverse a transaction, even if the merchant doesn’t send payment or if there’s fraud. “Who’s accountable?” he asked.
Stablecoins are also useful in tokenization that can help with trading in assets such as real estate, private equity, and bonds. But they aren’t the only way to tokenize the dollar. Banks could issue tokenized deposits, and central banks could issue CBDCs (central bank digital currencies).
Banks, however, have been slow to issue deposit tokens, Massad said. He noted that JP Morgan has been active in that space with its JPM Coin, which is targeted at institutional clients.
Wholesale CBDCs held and intermediated by banks “makes sense,” he said. But he disfavored retail CBDCs: “We don’t want the Fed to be a retail bank.”
“Regulation was long overdue, and is good, but it could be better.”— Timothy Massad
The Future of Stablecoins
Circle’s Then said the law recognizes stablecoins as one of the future forms of money. Their advantages over current forms of money are that they are faster, cheaper, and programmable, which helps cut out middlemen; it is also useful in cross-border transactions.
Much of the future of stablecoins will depend also on whether they converge with other forms of money. “Today the only forms of public money we use are cash and printed notes,” Massad said. “Otherwise, we use banks and private money that is subject to stricter regulation than stablecoins, deposit insurance, and the discount window at the Fed [that serves] as the lender of last resort. Stablecoins don’t have this. Will these converge? Will stablecoin issuers get accounts at the Fed? Will they be allowed to pay interest, and will regulation increase?”
“We have been using private forms of money for years (like PayPal), so thinking about nonbank payments and unbundling of banking, which is happening anyways (through private credit) is an interesting dynamic,” Massad continued.
The current U.S. administration sees value in privately-issued dollar-denominated stablecoins, Then noted. He pointed to the macroeconomic benefits of that approach: $3 trillion worth of U.S. stablecoins, which some forecasters anticipate by decade’s end, backed by Treasuries could support Treasury issuance and bring down yields a bit, and provide a source of demand as China and Japan back away from buying Treasuries.
Barr said that while stablecoins may represent one form of payments in the future, they are in their early stages of development. “There isn’t a market gap waiting to be filled there,” he pointed out. “The U.S. payment system works well most of the time today, with not many frictions, so it is not likely that stablecoins will be dominant in the U.S.” Stablecoins are, however, important for crypto trading, and as a store of value in countries with currency fluctuations and payment frictions, he added.
Barr noted that the U.S. dollar is the dominant currency because of fundamental reasons, including the strong rule of law, deep and liquid financial markets, Treasuries as risk-free assets, and the role of the U.S. in the international trade system.
According to Massad, stablecoins are important in maintaining the dominance of the U.S. dollar in global markets, but they do not have a primary role; geopolitical and financial factors are the most important factors.
Even so, it is important to ensure that the technology for dollar payments is up to speed with competing forces, Massad continued. He noted that some countries want to move away from the dollar for geopolitical reasons and because it has been used to impose sanctions.
According to Then, the U.S. is “in a world of currency competition with China and the EU.” China launched a CBDC in 2020. “There’s not much adoption, but they plan to ratchet up into retail users’ hands and into countries they do business with,” Then said. Recently, China started paying interest on the CBDC digital yuan.
Technology advances will determine the competitive advantage stablecoins could have over other methods of moving money, Barr said. That is especially so in countries that are considering issuing CBDCs; the U.S. is not among those.
“Regulators, practitioners, and policymakers now face the challenge of keeping up with innovation, while simultaneously shaping it in ways that are safe, transparent, and resilient.”— Max Harris
Stablecoins in Times of Stress
One overarching concern with any new technology is its potential impact on the stability of the U.S. financial system, especially the Treasury market. An audience member noted that Circle and Tether are large holders of U.S. Treasuries, and in fact they are bigger holders than many countries; hedge funds are also big holders of stablecoins. If they suddenly unwind in times of market distress, could it have an instability effect in the Treasury markets and raise interest rates?
Barr agreed it is important to explore the liquidity of stablecoins under stress, and make sure redemptions flow to market in a nondisruptive way. He noted that the Federal Reserve is continuously monitoring Treasury market stability. Hedge funds already have a large presence in that market, and the Fed looks at behavior in stress scenarios. Hedge funds are highly levered, so small movements could lead to unwinding, he pointed out.
Massad agreed that “the redemption issue is front and center” of the discussion on stablecoins and their impact on financial market stability. “Imagine a less well-managed issuer having a problem (such as a reserve loss, or with its operations or cyber security),” he said. He recalled that during the 2023 Silicon Valley Bank collapse, social media amplified concerns, and there were psychological responses in the markets. In such situations, “there could be a flight in/out of stablecoins, both generally and to specific stablecoins,” he added.
All considered, “stablecoins could present exciting new developments but also are competing against other payment systems,” Barr said. Despite the gaps in the GENIUS Act, Circle’s Then was optimistic. “The GENIUS Act is the end of the beginning, not the end of regulation,” he said. Added Massad: “Regulation was long overdue, and is good, but it could be better.”
Harris summed up the challenges ahead for the world of stablecoins: “Regulators, practitioners, and policymakers now face the challenge of keeping up with innovation, while simultaneously shaping it in ways that are safe, transparent, and resilient.”
