The power game behind stablecoins

Author: Buttercup Network, Thejaswini M A Translator: Saorise, Foresight News

Translator's Note: Cryptocurrency, once regarded as a "revolution that subverts traditional finance", did not end up on the path of violent confrontation. Instead, it was deeply bound to the regulatory system and political consensus, becoming a "tamed revolution". From attacking traditions to seeking permission, from decentralized ideals to centralized regulatory reality, the absurdity and contradiction of this "revolution" are the core of this article. When rebels bow to the system, is it a game of interests or an inevitability of the times?

In 2025, the rebels (cryptocurrency) did not attack banks, but applied for a license from the Office of the Comptroller of the Currency (OCC).

I have been trying to understand the phenomenon of the GENIUS Act. The more I think about it, the more I think the whole thing is absurd and intriguing. So let me walk you through how we went from “move fast and break things” to “move fast and regulate.” The bill has been signed and now the rules are settled. Stablecoins are regulated, no longer mysterious, and we now know who can issue them, who regulates them, and how they work. But this leads to an obvious question: What is the point of all this? Ask anyone in the crypto space and they will excitedly declare that this is crypto’s mainstream moment, a regulatory revolution that changes everything. They will talk excitedly about “regulatory clarity”, “institutional adoption” and “the future of money” while clutching the 47-page bill as if it were the Constitution.

Ask a US Treasury official and he will go on and on about how this will strengthen the dollar’s dominance like never before, guarantee security, attract investment back to the US, and all the usual government clichés.

On the surface, both sides win, but let’s be honest, the bigger win goes to the regulators. Cryptocurrencies and Bitcoin once tried to bring down banks and end the dollar’s hegemony, but now they want banks to issue cryptocurrencies backed by the dollar.

There’s an interesting contradiction at the heart of this whole thing: banks are actually terrified of stablecoins, and for good reason. They’re watching as trillions of dollars potentially flow out of traditional deposits and into digital tokens that yield no income but are fully backed.

What Congress did was to make it illegal to pay interest on stablecoins, essentially protecting banks from fears of competition.

The law states:

“No permitted issuer of a payment stablecoin or a foreign issuer of a payment stablecoin shall pay any form of interest or income (whether in cash, tokens, or other consideration) to a holder solely for holding, using, or retaining a payment stablecoin.”

Cryptocurrency was meant to be a trustless, decentralized alternative to traditional finance. But today, while you can send stablecoins on-chain, you have to do it through an embedded plugin on a venture-backed app and settle with a licensed issuer, whose partner bank is still JPMorgan Chase. The future is here, and it looks exactly like the past, but with a better user experience and more regulatory documents.

The GENIUS Act creates a Rube Goldberg-like system that allows you to use revolutionary blockchain technology, but only if you:

• get approval from the U.S. Office of the Comptroller of the Currency

• hold U.S. Treasury bonds as reserves at a 1:1 ratio

• submit monthly certification documents signed by the CEO and CFO

• allow authorities to order the freezing of tokens

• promise never to pay interest

• Business activities are limited to "issuing and redeeming stablecoins"

The last point is particularly intriguing: You can revolutionize finance, but you can never use the revolutionized finance for anything else.

We are witnessing the institutionalization of a movement that is supposed to be anti-establishment. Existing stablecoin issuers such as Circle are jubilant because they have already been largely compliant and now just need to watch their less regulated competitors kicked out of the field.

Meanwhile, Tether faces a life-or-death choice: either become transparent and accountable, or be banned from US exchanges by 2028. For a company that started out with opacity and offshore banking, this is like letting a vampire work the day shift.

Of course, with Tether's size, it may not have to care too much about this. At $162 billion, it’s bigger than Goldman Sachs, bigger than the GDP of most countries, and, let’s be honest, bigger than the entire regulatory apparatus that’s trying to constrain it. When you get to that level of size, “comply or leave” sounds less like a threat and more like a suggestion.

The “Libra Clause,” which essentially prevents tech giants from issuing stablecoins at will, is named after Facebook’s failed attempt to launch a global digital currency. Remember when everyone was panicking that Facebook might undermine sovereign currencies? Under today’s system, Facebook needs to get unanimous approval from the Federal Council to issue a stablecoin, and the tokens must not pay interest and must be fully backed by U.S. government debt.

Let’s talk about the economic logic behind everyone’s sudden attention. U.S. merchants currently pay Visa and Mastercard 2%-3% in fees on every transaction, which is often their largest expense after wages. The cost of stablecoin payments is only a few cents, and even less than 0.1% for large settlements, because blockchain infrastructure does not require huge banks and card organizations to share a piece of the pie. The $187 billion in card processing fees each year could have been kept in the pockets of merchants. In this way, it is not difficult to understand Amazon and Walmart’s interest in stablecoin solutions: why pay the card organization duopoly when you can send digital dollars directly?

@Visa

There is also a terrible feedback loop that no one wants to talk about: If stablecoins really take off and the issuance volume reaches trillions of dollars, a large part of the demand for US Treasury bonds will come from stablecoin reserves.

That sounds good, but the problem is that demand for stablecoins is inherently more volatile than traditional institutional buyers. Once people lose confidence in stablecoins and start to redeem them en masse, all the Treasury bonds will flood the market in an instant. At that time, the US government's borrowing costs will depend on the mood of the cryptocurrency Twitter users that day, just like betting mortgage payments on the mood swings of short-term traders. The US Treasury market has experienced ups and downs, but "panicked stablecoin users trigger algorithmic selling pressure" is the first time.

What's most intriguing is that this reflects the evolution of cryptocurrency from "anarchist currency" to "institutional asset class". Bitcoin was supposed to be peer-to-peer electronic cash without trusting a third party, but now there is a federal law that stipulates that digital dollars can only be issued by highly trusted and strictly regulated third parties, and these third parties are also responsible to higher-level regulators.

Stablecoin issuers are required by law to freeze tokens on the blockchain network if the authorities ask them to. This means that every “decentralized” stablecoin must have a centralized “kill switch.” This is not a bug, this is a feature.

We have successfully created “censorship-resistant money”, but it also has the ability to enforce censorship.

Don’t get me wrong, I’m all for regulatory clarity and dollar-backed stablecoins. This is great: crypto innovation has rules to follow, and the mainstreaming of a digital dollar is a real revolution. I’m all for it. But don’t pretend this is some generosity of regulatory enlightenment. It’s not that regulators suddenly fell in love with crypto innovation, it’s that someone walked into the Treasury Department and said, “Why don’t the world use more dollars, just in digital form, and have them buy more U.S. Treasuries to back it up.” And so stablecoins went from “dangerous crypto stuff” to “a great tool for dollar hegemony.”

Every USDC issued means one more Treasury bond sold. $242 billion in stablecoins means tens of billions of dollars flowing directly into Washington, driving up global demand for U.S. Treasuries. Every cross-border payment that bypasses the euro or yen, and every foreign exchange market that lists a regulated U.S. stablecoin is another "franchise" of the U.S. monetary empire.

The GENIUS Act is the most sophisticated foreign policy operation disguised as domestic financial regulation.

This raises some interesting questions:What happens when the entire crypto ecosystem becomes an appendage of U.S. monetary policy? Are we building a more decentralized financial system, or are we creating the world's most complex dollar distribution network? If 99% of stablecoins are pegged to the U.S. dollar, and any meaningful innovation requires approval from the U.S. Office of the Comptroller of the Currency, have we accidentally turned a revolutionary technology into the ultimate export business of fiat currency? If the rebellious energy of cryptocurrencies is directed toward making the existing monetary system more efficient rather than replacing it, will anyone really care as long as payments are settled faster and everyone makes money? These aren’t necessarily problems, but they’re far removed from the problems people wanted to solve when the movement first began.

I’ve been joking about this, but the fact is, it might actually work. Just as the free banking system of the 1830s evolved into the Federal Reserve System, cryptocurrencies may be on their way out of their chaotic adolescence and into maturity as a systemically important part of the financial infrastructure.

Let’s be honest, for 99.9% of people, they just want to transfer money quickly and cheaply, and they don’t care about monetary theory or decentralized ideas at all.

Banks are already positioning themselves to become major issuers of these new regulated stablecoins. JPMorgan Chase, Bank of America, and Citigroup are all said to be preparing to offer stablecoin services to their clients. The very institutions that were supposed to be disrupted by cryptocurrencies are now the biggest beneficiaries of crypto regulation legitimization.

This isn’t the revolution anyone expected, but it may be the revolution we get.Oddly enough, this is also pretty genius.