With more than a quarter-trillion dollars’ worth of stablecoins in use and the much-anticipated GENIUS Act establishing a dual federal and state regulatory framework for regulating this tech-driven digital asset, it’s pretty clear that stablecoins are going mainstream. Here, we offer a primer on what stablecoins are, what they could become and how financial markets are responding.

Then we try something novel: an assessment of the public policy implications supported by a new Andersen Institute survey of expert opinion filtered through large language model AI analysis of podcast episodes devoted to stablecoins. The survey data suggest that stablecoins hold the promise of revolutionizing the domestic and international dollar payment system by lowering transaction costs, shortening settlement times, providing continuous 24/7 payment system access and broadening financial inclusion.

At the same time, the survey-based analysis warns that stablecoins pose significant risks to systemic financial stability if the market grows as large as currently predicted – and especially if vast scale is achieved in a matter of a few years. The new regulatory framework introduced by the GENIUS Act, with specific design features aimed at addressing some inherent vulnerabilities, does have the potential to ameliorate some risks, but will not eliminate them.

The Nitty Gritty

A stablecoin is a form of cryptocurrency, a virtual currency living encrypted on decentralized networks that promises to maintain a constant value against a reference asset – typically the U.S. dollar. Dollar-denominated stablecoins gained early traction from the demand for a stable medium of exchange within the volatile crypto ecosystem. The total market capitalization of USD stablecoins grew by nearly half in 2025 to just under $300 billion.

The dollar-anchored stablecoin supply currently in circulation is highly concentrated, with just two providers, Circle, which issues USDC, and Tether, which issues USDT, responsible for over 85 percent of the total.

But this is apparently just the beginning of the build-out. The stablecoin market is expected to expand rapidly, with bullish estimates of capitalization as high as $4 trillion by 2030.

The attention of Wall Street and the media paralleled the growth of supply of USD stablecoins in 2025. This tsunami of tokenized money and its technological novelty, combined with strong interest in providing a legal framework on the part of both investors and the crypto industry, culminated with the passage of the GENIUS Act with bipartisan support. The GENIUS Act (formally, the Guiding and Establishing National Innovation for U.S. Stablecoins Act) requires any USD stablecoin issued in the United States to be fully backed by safe U.S. dollar assets. Some $20 billion to $30 billion in foreign-issued stablecoins like Tether’s USDT – which pegs to the U.S. dollar but is partly backed by cryptocurrencies, commodities and non-dollar assets as reserves – are not GENIUS-compliant. However, USDT can continue to circulate, and Tether can operate legally as offshore stablecoins.

In accordance with the act, GENIUS-compliant stablecoin issuers must invest the U.S. dollars they receive in short-term, high-quality, liquid assets (HQLA) such as U.S. Treasury bills, reverse repos and bank deposits – but with no standardized allocation requirements. The GENIUS Act does prohibit compliant stablecoins from paying interest directly to holders, although market participants have already found workarounds by indirectly offering interest by other names.

GENIUS-compliant issuers’ business model is simple and profitable: they earn interest on their reserve portfolios of high-quality short-term liquid assets without paying interest on their liabilities/deposits. Other stablecoin issuers’ business model (and that of GENIUS-compliant ones that find ways to indirectly reward holders) will earn a spread between the return on their reserves and their cost of funds.

Stablecoin Reserves

The figure to the right compares the reserves composition of four USD stablecoins: Tether (USDT), Circle (USDC), First Digital (FDUSD) and PayPal Coin (PYUSD). Circle is a U.S.- issuer with reserves consisting exclusively of GENIUS-compliant assets. Meanwhile, Tether, the largest issuer globally, is not U.S.-domiciled and holds a significant share of reserves in non-HQLA. All four issuers hold small amounts of cash and bank deposits to meet demand for immediate redemptions.

The largest reserve assets backing Tether and First Digital are T-bills, while Circle is backed by a larger portion of reverse repos. To date, PayPal Coin holds no T-bills and is almost fully backed by reverse repos. Tether, for its part, also holds $6.6 billion of precious metals, $7.6 billion of bitcoin, and some corporate bonds and non-U.S. sovereign debt.

Each reserve asset class poses some risks. Bank deposits and money market funds expose issuers to liquidity risk. Moreover, deposits held by issuers are likely too large (more than $250,000) to be covered by FDIC insurance, exposing issuers to credit risk. Reverse repo lending is subject to some, albeit small, counterparty credit risk. Even T-bills, arguably the world’s safest asset, carry some interest-rate risk and liquidity risk especially during periods of market dislocation.

For GENIUS-noncompliant stablecoins, holding risky assets such as cryptocurrencies and commodities exposes the issuer to additional risks, notably market risk. Other assets can expose the issuer to foreign exchange risk if the securities are not denominated in dollars.

Stablecoins, Bank Deposits, and Money Market Funds

Setting aside their purely digital nature, USD stablecoins are often compared to bank deposits and money market funds because they are also used as means of payment and liquid stores of value. Under the GENIUS Act, stablecoin holders (like bank deposit holders) are legally viewed as creditors with a priority claim on the reserve assets of the issuer, which must be held in segregated accounts. However, in the event of a default, it is unclear whether stablecoin holders have recourse to assets held outside the segregated account that reflect reinvested earnings of stablecoin issuers.

This contrasts with the treatment of the owners of bank deposits, who have claims on all assets of the bank, including those reflecting the reinvestment of retained earnings. By contrast, shareholders in money market funds are considered equity holders in the funds. Moreover, neither stablecoins nor bank deposits are considered securities, while money market funds must be registered with the SEC.

Lastly, but crucially, stablecoin issuers do not pass through the interest earned on reserve assets to their holders, while money market funds do (net of fees). Banks sit in the middle, typically paying depositors interest rates below market-based money market rates.

The degree to which an asset is interest-bearing will determine the potential sources of the demand for GENIUS-compliant stablecoins over economic and interest rate cycles. As discussed below, the quantity of stablecoins outstanding declines when interest rates rise, and vice versa, as the opportunity cost of holding non-interest-bearing instruments rises and falls with interest rates.

Experts’ Perceptions of Regulation

Over the podcast survey sample period, the dominant expert view of regulation has shifted from restrictive to neutral (Figure below, right panel). Much of the shift occurred once the GENIUS Act legislative process picked up in May 2025 and improved further after the Senate vote.

Use Cases and Potential Benefits

Stablecoins are seen in our survey as financial infrastructure or a settlement technology, a medium of exchange for crypto trading, a domestic or international means of payment, a store of value, a medium for DeFi and tools to address financial inclusion.

Payments and Financial Infrastructure

The use of stablecoins as a settlement layer or means of payment could enable faster and cheaper transactions utilizing blockchain and smart-contract technology. In contrast to the existing two-tiered payment system, stablecoin payments can settle on-chain directly between digital wallets without relying on central bank or interbank settlement. For businesses, accepting stablecoin payments in lieu of credit cards could lower costs by significantly reducing interchange fees. Increased settlement speeds mean businesses could also reduce the lag between time of sale and the money received from the sale. (Note one downside, though: while refunds are commonplace in online commerce, blockchain transactions are inherently irreversible.)

Stablecoins may also bring efficiency gains to international payments and remittances. The cross-border retail payments market is large and expected to grow further in coming years. Stablecoins have the potential to reduce cross-border intermediation fees and provide 24/7 payment system access. This alluring cross-border role explains why our surveyed experts mention non-U.S. holders of USD stablecoins more frequently than U.S. holders.

Facilitating Cryptocurrency Activity

To date, stablecoins are most often used as a medium of exchange for trading cryptocurrencies. Indeed, many crypto exchanges quote cryptocurrency prices in stablecoins instead of dollars. Stablecoins also bring some degree of stability to volatile cryptocurrency markets, facilitating trades without requiring traders to convert capital back and forth from legal tender.

A Tool for Financial Inclusion

Advocates claim that stablecoins may increase financial inclusion because barriers to holding stablecoins may be lower than barriers to holding U.S. dollars in bank deposits. Some perspective is useful here: stablecoins do not provide other clear advantages over other electronic mobile payment methods, yet potentially expose the unbanked to greater fraud and cybersecurity risks. Nonetheless, USD stablecoins have already seen some success in non-U.S. jurisdictions – for example, with large underbanked populations in Nigeria.

Store of Value and Investable Asset

If stablecoins eventually become popular vehicles to hold liquid assets that earn interest – effectively functioning as tokenized money market funds – they could grow into an asset class with a major role in dollar-based payment and financial systems. USD stablecoins promise a less costly and more portable store of value than physical cash, as storing and transporting large quantities of currency is expensive and risky. This function, like cash holdings of large-denomination notes, has proven particularly appealing outside the United States.

International Role of the U.S. Dollar

Our survey paradoxically suggests that stablecoins are seen as either potentially strengthening or weakening the international role of the U.S. dollar. While dollar hegemony is the fifth most mentioned benefit of stable coins in our survey of experts, weakening of USD hegemony is ranked as the seventh most mentioned risk.

There’s no contradiction here. On one hand, stablecoins could strengthen the role of the U.S. dollar by increasing foreign dependence on the rails of the U.S. payment system Second Quarter 2026 21 and by channeling foreign demand into liquid U.S. assets such as U.S. Treasuries. However, stablecoins could also weaken dollar hegemony by contributing to the fragmentation of the traditional dollar system.

Yes, But...

Our podcast survey clearly identifies systemic financial stability as the main perceived risk, followed by money laundering and other illicit finance. The risks of illiquidity and cybersecurity risks came in as third and fourth. Centralization risk generally refers to the risks arising from USD stablecoins being issued and backed by a centralized entity. These include, for example, operational, credit and counterparty risk.

Financial Stability Risks and Vulnerabilities

Financial stability risks and vulnerabilities inherent to stablecoins are similar to those associated with other money-like instruments and means of payment. These vulnerabilities include liquidity and risks of runs on the issuing institution due to maturity mismatches, counterparty and credit risks, and interconnectedness with other parts of the domestic and international financial system. Note, moreover, that they carry the same foreign exchange risk as plain-vanilla U.S. dollar holdings – and that the stablecoins not meeting GENIUS standards may be backed by assets that also carry maturity and credit risks for the issuer.

Consider, too, that GENIUS-compliant stablecoin issuers have limited scope to lever their asset portfolios, although on the other side of the market, stablecoins (GENIUScompliant or not) tend to be used by investors to deploy leverage in cryptocurrency markets. These risks are much less pronounced for GENIUS-compliant stablecoins than for noncompliant stablecoins.

Liquidity and Run Risk

Both GENIUS-compliant and noncompliant stablecoins are potentially vulnerable to the equivalent of old-fashioned bank runs. This is because the issuer promises on-demand redemption of its liabilities at par, while its assets may not always be sufficiently liquid or capitalized to satisfy snowballing redemptions. However, the GENIUS Act gives issuers the option to borrow in repo markets to meet redemption demands, alleviating some of this vulnerability compared to noncompliant stablecoins.

As noted earlier, liquidity risks are heightened in a volatile interest rate environment because the opportunity cost of holding noninterest-bearing stablecoins changes with interest rates. While the GENIUS Act should go

a long way toward instilling trust in this new market and ameliorating some of these vulnerabilities, it does not eliminate liquidity risk – especially because even GENIUS-compliant stablecoins (unlike bank deposits) are not federally insured and do not have a public liquidity backstop.

Credit and Counterparty Risk

Stablecoin holders are also exposed to credit risk. Because stablecoin issuers can default and stablecoins are not government-insured, stablecoin holders will be exposed to the default of the issuer. Additionally, stablecoin issuers may also be directly exposed to credit risk because some of their reserve assets carry credit risk. Bank deposits held as reserves by stablecoin issuers carry credit risk because they would likely exceed the FDIC insured limit of $250,000 per deposit institution. In fact, during the run on Silicon Valley Bank in March 2023, Circle Bank publicly disclosed that it held $3.3 billion (8 percent of its reserves) in deposits with SVB, virtually all of which were uninsured. Following the disclosure, the secondary market price of USDC, the stablecoin issued by Circle, fell substantially below $1 until federal regulators stepped in to guarantee all SVB deposits. The outstanding supply of Circle’s USDC shrank 44 percent in the weeks following the event.

Market Risk

Most stablecoin holders are exposed to market risk, as the secondary market price for stablecoins can deviate from $1 for a variety of reasons. Only select authorized participants can access the primary market and redeem at par directly with the issuer. Market risk is much larger for noncompliant stablecoins backed by assets carrying material market risks themselves.

Similarly, stablecoin issuers are also exposed to market risk in the form of interest rate risk. Since GENIUS-compliant stablecoin issuers back their liabilities with T-bills, account holders are exposed to the possibility that interest rate increases could depress the value of the liquid assets that back the coins. Leverage and FX Risk

The GENIUS Act provides for the possibility that compliant issuers borrow in repo markets – but only to meet liquidity needs as opposed to increasing leverage. Moreover, GENIUScompliant stablecoins must be backed by U.S. HQLA, leaving no room for foreign exchange risk on the balance sheet of the issuer.

By contrast, issuers of noncompliant stablecoins may in principle use leverage to enhance their own returns. Tether, for example, has at times extended loans to third parties by borrowing against the reserves backing its stable-coins. GENIUS-compliant stablecoin issuers are only allowed to borrow against assets held as reserves to meet specified liquidity needs. In principle, noncompliant USD stablecoins may also invest in non-dollar denominated assets that carry foreign exchange risk. Tether has a small allocation of reserves in non-U.S. sovereign debt, although their currency denomination is not disclosed.

Operational and Cyber Risks

Like holders of other forms of cryptocurrency, holders of stablecoins are exposed to operational and cybersecurity risks. While GENIUS-compliant issuers will be subject to ex ante regulatory requirements and ex post monitoring that mitigate the vulnerability of their coins compared to noncompliant coins, they will also become more attractive targets of cyberattacks and potentially stronger conveyors of operational risk because they likely will be more widely adopted within the U.S. financial system.

Illicit Finance Risk

The pseudonymity of stablecoins enhances privacy, of course, but also raises the risk of their use for illicit financing activities. Crypto analytics firms such as Chainalysis and TRM Labs estimate that stablecoins account for over 60 percent of illicit cryptocurrency transaction volume, overtaking bitcoin as the cryptocurrency of choice for illicit finance. These firms also estimate that cryptocurrencies accounted for about $50 billion in illicit finance activity in 2024.

Most crypto-financed illicit activity is used to cover the tracks of scammers and ransomware extortionists, but stablecoins have also been increasingly used for sanctions evasion. There is also some evidence of increased use in money laundering activities by terrorist organizations.

Interconnectedness

A growing stablecoin market significantly strengthens interconnectedness between the crypto ecosystem and the traditional financial system. Stablecoin redemption risks tend to grow when cryptocurrency prices decline because stablecoins facilitate cryptocurrency trading and use of leverage in that market. Consequently, stress in crypto markets has the potential to propagate to (and beyond) traditional financial markets such as the Treasury, repo and deposit markets in which stablecoin reserves are invested. When cryptocurrency prices fell dramatically in 2022, the stablecoin Terra failed and crypto market stress spread to Tether, which faced redemptions and significant downward price pressure in secondary markets.

Another source of interconnectedness comes from issuers’ creation of stablecoins in multiple markets. With stablecoins circulating across multiple jurisdictions under differing regulatory regimes, it is also possible that redemption stress will originate in a more loosely regulated jurisdiction, perhaps due to a deterioration in the value of assets that are eligible reserves under that jurisdiction’s regulatory regime. The issuer may then also face strains and redemptions in the more tightly regulated jurisdictions.

Consequently, entities in more tightly regulated jurisdictions may end up with runs simply because of the misperception that the two versions of the stablecoin are equally at risk. Alternatively, the balance sheets of more tightly regulated entities could be used to bail out more loosely regulated entities, spreading the risk.

Regulatory Gaps

While the GENIUS Act lays the foundation for a comprehensive regulatory framework for stablecoins, it leaves several issues unaddressed. For one thing, the act does not grant stablecoin issuers access to public liquidity backstops or guarantees in times of financial stress. Unlike U.S. dollars, USD stablecoins are not backed by the full faith and credit of the U.S. government. Nor does any regulatory agency insure stablecoin holders the way the FDIC insures bank depositors.

In the event of a liquidity shock, banks have access to the Federal Reserve discount window and to the Fed’s standing repo facility. Stablecoin issuers that are subsidiaries of insured depository institutions may also have indirect access to Fed liquidity facilities to the extent that their parent banks are prepared to borrow against their own collateral and can pass funding on to stablecoin subsidiaries. However, non-bank stablecoin issuers would not have such indirect access.

Second, the act prohibits stablecoin issuers from paying interest to holders, but (as noted earlier) does not appear to prohibit indirect financial incentives on stablecoins via exchanges, decentralized protocols or partnerships with third parties – a common stablecoin practice that has recently become a point of tension with the banking industry.

* * *

Stablecoins are likely here to stay, bringing both new technological opportunities and financial risks. The GENIUS Act and companion legislative proposals, along with executive orders blocking the development of a public alternative in the form of a central bank digital currency in the United States, suggest that this is the direction in which USD digital money will evolve in the future.

This is hardly the end of the story, though. While the GENIUS Act does add a layer of regulatory certainty, the market is too new and insufficiently tested by stress to offer much perspective on the balance of costs and benefits in this next step in digital finance. Stay tuned.