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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Today a victory celebration

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Speaker 1: at the White House as Republican lawmakers and crypto industry

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Speaker 1: leaders gathered around the President for the signing of the

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Speaker 1: Genius Act. On July eighteenth, President Trump signed the Genius Act.

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Speaker 1: It's the country's first major federal cryptocurrency legislation. A landmark

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Speaker 1: bill establishing a regulatory framework for the roughly two hundred

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Speaker 1: and fifty billion dollar cryptocurrency market known as stable coin,

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Speaker 1: has become law. The law focuses on a type of

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Speaker 1: cryptocurrency called stable coin.

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Speaker 2: It's a digital asset that's designed to maintain a stable price,

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Speaker 2: as the name suggests, and it's typically backed by reserves

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Speaker 2: that are held in short term assets like short term

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Speaker 2: US treasuries or cash.

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Speaker 1: Emily Mason covers cryptocurrencies for Bloomberg.

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Speaker 2: With the crypto industry, there's so much stuff that's really

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Speaker 2: out there in odd like there's NFTs, there's the board apes,

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Speaker 2: there's dogecoin, There's all these kind of crazy, really volatile cryptocurrencies.

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Speaker 2: And stable coin is the thing that really has kind

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Speaker 2: of real use cases in the real world for real

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Speaker 2: businesses and real financial institutions.

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Speaker 1: Emily says the signing of the Genius Act into law

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Speaker 1: marks a major and long awaited milestone for the crypto industry.

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Speaker 1: Stable Coins already make up about two thirds of crypto transactions,

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Speaker 1: and this new legislation will make it much easier for

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Speaker 1: the digital assets to go mainstream.

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Speaker 2: The challenge beforehand is that there were a bunch of

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Speaker 2: companies and financial institutions that were sort of stable coin curious,

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Speaker 2: but they couldn't really act on that curiosity because they

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Speaker 2: didn't know if it was allowed or if they were

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Speaker 2: going to get in trouble. I think now it's where

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Speaker 2: the building can really start happening and scaling.

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Speaker 1: I'm Sarah Holder, and this is the big take from

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Speaker 1: Bloomberg News today. On the show, what are stable coins

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Speaker 1: exactly work, Why they were the focus of the US's

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Speaker 1: first crypto legislation, and what their wider adoption could mean

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Speaker 1: for the crypto industry, for banks, and for you and me.

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Speaker 1: If you chart the price of a cryptocurrency like bitcoin,

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Speaker 1: you get a very bumpy roller coaster. It makes for

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Speaker 1: a wild ride. But stable coins they're designed for minimal

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Speaker 1: motion sickness.

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Speaker 2: They can even be pecked to commodities like gold, but

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Speaker 2: typically the most popular ones, they're packed to the US dollar.

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Speaker 1: Okay, not to get all philosophical on you, but the

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Speaker 1: US dollar, like any other currency, it's kind of make

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Speaker 1: belief it has value because we all believe it does.

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Speaker 1: For a long time, the US dollar was actually backed

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Speaker 1: by gold, real tangible gold that helps set the value

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Speaker 1: of a dollar and keep it stable. We stopped doing

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Speaker 1: that in the nineteen seventies. But cryptocurrency are brand new,

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Speaker 1: relatively speaking, and they're not backed by a trustworthy government.

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Speaker 1: Their value has been notoriously volatile. Stable coins are supposed

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Speaker 1: to be the answer to all that volatility, because the

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Speaker 1: value of most stable coins isn't just determined by how

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Speaker 1: much people are willing to pay for them on any

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Speaker 1: given day, but by the value of the traditional currency

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Speaker 1: they're pegged too. For every stable coin, they're supposed to

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Speaker 1: be a dollar again, a US Treasury bond, or some

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Speaker 1: tangible asset locked away in a vault, kind of like

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Speaker 1: there used to be gold for the dollar. But this

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Speaker 1: of course begs the question, if you really want something stable,

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Speaker 1: why not just use a dollar.

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Speaker 2: So the advantage in the demand for a stable coin

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Speaker 2: is you can use it for transactions. You can use

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Speaker 2: it as a payment vehicle because the price isn't volatile,

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Speaker 2: but you can still get the advantages of the blockchain.

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Speaker 1: Quick reminder of what the blockchain is for those of

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Speaker 1: us who might need one. It's essentially a digital district

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Speaker 1: needed ledger.

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Speaker 3: Keeps track of the transactions.

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Speaker 2: I think the advantages of digital currencies that people are

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Speaker 2: really excited about are, for example, it's programmable, so you

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Speaker 2: can do things like if this happens, then send this payment,

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Speaker 2: and that can happen automatically with something called a smart contract,

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Speaker 2: which are you know, contracts that are automatically executed when

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Speaker 2: certain conditions are met. So that's something that people are

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Speaker 2: really excited about with digital currencies, and you can make

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Speaker 2: that work with stable coin.

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Speaker 1: Stable Coin, like other cryptocurrencies, operates on the blockchain, so

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Speaker 1: you get all those advantages while avoiding the crazy price

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Speaker 1: fluctuations we were talking about earlier. Makes sense in theory,

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Speaker 1: but I asked Emily, in the real world, what are

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Speaker 1: companies and people actually using stable coins for.

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Speaker 2: Yeah, so if you're a big institution and you're managing

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Speaker 2: entities kind of around the world, and you need to

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Speaker 2: be moving money quickly between them. Then stable coin's attractive

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Speaker 2: for that reason because it's instant and it's twenty four

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Speaker 2: to seven versus other means of payments, especially cross border,

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Speaker 2: have to go through like a correspondent banking system, so

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Speaker 2: it kind of gets pinged between like bank ABCD until

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Speaker 2: it gets to its final destination. Each of those banks

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Speaker 2: charges a fee, and each of those banks can add

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Speaker 2: delay to the transaction actually settling and clearing. So stablecoin

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Speaker 2: cuts out all of those intermediaries and it lets you

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Speaker 2: kind of just send it directly from point A to

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Speaker 2: point B, so that can be cheaper, that can be

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Speaker 2: more efficient, it can be faster, and it can happen anytime.

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Speaker 2: So that's kind of the advantage of stable coin.

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Speaker 1: It's like wiring money turbo speed.

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Speaker 2: Yes, it's like wiring money, and that can have a

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Speaker 2: lot of business advantages. So like if I need to

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Speaker 2: pay a vendor abroad and I'm running a business in

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Speaker 2: the US and the vendor is not going to release

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Speaker 2: my goods to me, that I need to run my

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Speaker 2: business until the payment lands. If I can do that

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Speaker 2: instantly with stable coin, like that really helps me run

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Speaker 2: my business more efficiently.

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Speaker 1: What about consumers, Why would someone like you or I

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Speaker 1: use a stable coin.

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Speaker 2: Yeah, so in the US, consumer payments work pretty well.

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Speaker 2: Like I personally don't really need a stable cookin in

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Speaker 2: my day to day. But if you're living in a

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Speaker 2: country where the native currency is more volatile and it's

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Speaker 2: not a good store of value, then access to dollars

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Speaker 2: is really appealing, and I might not be able to

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Speaker 2: get a US bank account very easily. So holding stable

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Speaker 2: coin is really attractive for that reason. And like, one

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Speaker 2: trend that's emerging is US companies employing contractors abroad are

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Speaker 2: using stable coin to pay them, and a lot of

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Speaker 2: different payroll providers are coming out with solutions to enable that.

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Speaker 1: The problem is stable coins aren't always perfectly stable. A

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Speaker 1: stable coin can break from the currency or asset it's

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Speaker 1: pegg two. Emily says. This is called a depegging event.

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Speaker 2: That's when the stable coin isn't trading one for one

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Speaker 2: for like one USD.

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Speaker 1: One of the most high profile depegging events happened a

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Speaker 1: few years ago and it involved one of the largest

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Speaker 1: stable coin issuers called Circle.

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Speaker 2: So Circle very briefly depegged when Silicon Valley Bank failed

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Speaker 2: because they were holding a lot of their reserves there.

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Speaker 1: Silicon Valley Bank was the favored regional bank of many

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Speaker 1: California tech firms. When it collapsed in twenty twenty three,

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Speaker 1: Circle suddenly lost access to a chunk of its reserves.

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Speaker 1: Spooped investors sold Circle stable coin, and its value fell.

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Speaker 1: Instead of being one to one with a dollar, the

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Speaker 1: issuer's stable coin briefly fell as low as eighty one

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Speaker 1: and a half cents before Circle reassured investors and the

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Speaker 1: price bounced back, but other stable coins haven't been able

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Speaker 1: to recover.

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Speaker 2: Kar Luna was a really popular stable coin, and then

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Speaker 2: that kind of had like a spiral deepegging episode and

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Speaker 2: is now defunct.

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Speaker 1: Tether, the world's largest issuer of stable coins, has also

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Speaker 1: faced questions about just how stable its stable coins are.

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Speaker 1: In twenty twenty one, it paid about sixty million dollars

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Speaker 1: to New York and the US Commodity Futures Trading Commission

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Speaker 1: to settle allegations of making untrue and misleading claims, including

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Speaker 1: the fact that all its coins were backed one to

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Speaker 1: one by US dollars at all times. Tether still doesn't

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Speaker 1: release audited statements about the reserves that back it's stable coins,

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Speaker 1: given these concerns about transparency and reliability. I asked Emily

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Speaker 1: how stable coin issuers are supposed to make sure their

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Speaker 1: currency lives up to its name.

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Speaker 2: Yeah, I mean, it's keeping your reserves in a really

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Speaker 2: trusted and secure place. I think the risk is always.

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Speaker 2: I mean it's similar to bank runs, right, Like if

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Speaker 2: depositors lose confidence in their bank and they all rush

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Speaker 2: to take their money out and it's not immediately available,

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Speaker 2: that's when you have a bank failure. And stablecoin issuers

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Speaker 2: are similar, Like, if the people holding your coin lose

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Speaker 2: confidence that you're maintaining the reserves in a safe and

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Speaker 2: sound way and that they're actually there and that they

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Speaker 2: can actually redeem their money, then they're going to rush

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Speaker 2: to redeem. And I think that's one of the big

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Speaker 2: concerns is like, Okay, if you have an event like that,

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Speaker 2: if you have like the equivalent of a bank run

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Speaker 2: on a stable coin issuer, are you going to be

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Speaker 2: able to meet those demands and those redemption requests? And

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Speaker 2: I think some lawmakers were saying, like, Okay, if circle

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Speaker 2: takes off and all of these can consumers have USDC

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Speaker 2: and they're holding stable coin balances and something like that,

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Speaker 2: happens and circle fails, are we going to bail them out? Like,

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Speaker 2: we don't really want to sign up for that. So

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Speaker 2: that's kind of one of the concerns.

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Speaker 1: And lawmakers have other concerns about stable coins. Report from

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Speaker 1: the Financial Action Task Force released in June show that

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Speaker 1: most criminal activity happening on cryptocurrency ledgers now involves stable coins.

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Speaker 1: Besides the obvious appeal of anonymity that all cryptocurrency offers,

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Speaker 1: Emily says, financial criminals like stability too. Well.

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Speaker 2: The advantages of stable coins for the traditional market are

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Speaker 2: the same for criminal actors, right, Like the price is stable,

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Speaker 2: So if I'm making payments, I want the currency that

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Speaker 2: I used to be worth the same amount today that

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Speaker 2: it was yesterday when I made the payment, So the

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Speaker 2: advantages are kind of the same there.

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Speaker 1: That's so interesting. So like above above board, financial actors

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Speaker 1: like stable coin for the same reason that potentially mortifarious

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Speaker 1: actors would like it.

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Speaker 3: Yeah, one hundred percent.

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Speaker 2: And then on the transparency piece with the blockchain, like

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Speaker 2: it's kind of one of those things where it's like, Okay,

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Speaker 2: you can see all the transactions and you can see

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Speaker 2: the digital wallets that were that were transacting but the

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Speaker 2: wallets have these really long names. It's like a bunch

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Speaker 2: of letters and numbers, and you're kind of like, okay,

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Speaker 2: well who is that? And then you can see all

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Speaker 2: the transactions, but you don't necessarily know who's making the transactions.

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Speaker 2: And that's why the off ramping is such a big

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Speaker 2: kind of conversation for criminals. It's sort of like, Okay,

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Speaker 2: if I've got all of this illicit money in my

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Speaker 2: cryptocurrency wallet, how am I going to get it out?

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Speaker 2: But not tie it to myself? Because as soon as

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Speaker 2: I try to transfer it to a bank account, the

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Speaker 2: bank knows who I am, and so that's kind of

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Speaker 2: like a challenge for them.

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Speaker 1: Coming up, we dig into the Genius Act and how

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Speaker 1: regulating stable coins could push more companies to start making

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Speaker 1: them and using them. With the passage of the Genius Act,

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Speaker 1: the US is now officially regulating the cryptocurrency market, well

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Speaker 1: one corner of it, anyway. Bloomberg's Emily Mason says, out

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Speaker 1: of all the digital assets out there, stable coins were

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Speaker 1: a logical place to start.

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Speaker 2: I think just like they have a really concrete use

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Speaker 2: case that it's kind of clear to see than maybe

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Speaker 2: some of the other cryptocurrencies that are used primarily for

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Speaker 2: trading activities, and they're more of like it's more of

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Speaker 2: an investment vehicle than it is for actually making payments.

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Speaker 2: And the Genius Act is very specific. It's for payment

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Speaker 2: stable coin issuers. This is for making payments and like

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Speaker 2: making payments easier and just better for businesses and financial

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Speaker 2: institutions and potentially consumers if that makes sense, though it's

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Speaker 2: not super clear why it would in the US.

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Speaker 1: Can you break down what exactly the regulation does?

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Speaker 2: Yeah, So it kind of creates guidelines around like what

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Speaker 2: the reserves need to look like, it needs to be

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Speaker 2: backed one to one by short term assets. It establishes

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Speaker 2: the OCC as a regulator of stable coin issuers, though

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Speaker 2: the issuers can still be regular by either state or

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Speaker 2: federal regulators.

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Speaker 1: The OCC is the Office of the Controller of the Currency.

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Speaker 3: Yeah, and it's like a federal regulator.

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Speaker 1: Another thing the Genius Act does is it requires issuers

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Speaker 1: to abide by anti money laundering and anti terrorism rules.

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Speaker 2: Honestly, it's pretty short, Like that's what's kind of crazy.

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Speaker 2: It's like, if you read it, it's like a pretty

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Speaker 2: short thing. Those are kind of the main things that

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Speaker 2: we've been calling.

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Speaker 1: Out though, Yeah, well, why is it important that this

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Speaker 1: regulation ensures or tries to ensure that these coins are

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Speaker 1: backed by actual assets. The dollar, for example, was once

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Speaker 1: backed by gold, but it hasn't been for decades.

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Speaker 3: Yeah.

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Speaker 2: The banks are regulated super closely by different there's a

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Speaker 2: lot of different regulators, the OCC being one of them,

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Speaker 2: the FDIC being another one, and then bank deposits are

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Speaker 2: also ensured up to two hundred and fifty thousand dollars

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Speaker 2: by the FDIC. So even though it's not backed one

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Speaker 2: to one by gold, it's kind of got this really

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Speaker 2: sturdy infrastructure around it to keep consumers and businesses safe

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Speaker 2: and to keep people confident that they can transact in

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Speaker 2: the dollar and they're not going to have a problem.

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Speaker 3: And stablecoin it's the same thing.

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Speaker 2: You know, you need to build this regulatory scaffolding around

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Speaker 2: it so that people can use it and feel safe

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Speaker 2: and don't get in trouble.

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Speaker 1: Who was pushing for this regulation? Who are the legislation's

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Speaker 1: main backers?

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Speaker 2: I mean the crypto industry of course, And they put

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Speaker 2: a lot of money into Trump's campaign, into his inauguration fund.

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Speaker 2: They had lots of like flashy parties because they put

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Speaker 2: money in for that, so crypto companies. The Trump family

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Speaker 2: is kind of like involved in the cryptocurrency industry, so

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Speaker 2: they've they've been supporters of it. He and his sons

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Speaker 2: founded World Liberty Financial. He stepped down once he became president,

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Speaker 2: but World Liberty Financial issues its own stable coin called

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Speaker 2: USD one, So they are like heavily involved in this industry,

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Speaker 2: in this space.

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Speaker 1: According to the Bloomberg Billionaire's Index, crypto ventures added at

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Speaker 1: least six hundred and twenty million dollars to Donald Trump's

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Speaker 1: fortune as of early July. That's one reason critics of

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Speaker 1: the Genius Act, including Massachusetts Senator Elizabeth Warren, opposed the law.

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Speaker 1: She was also concerned about technology companies issuing their own

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Speaker 1: stable coins.

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Speaker 2: So someone like a Meta or Elon Musk with X

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Speaker 2: like he could issue a stable coin and kind of

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Speaker 2: turn these platforms into almost de facto bank accounts. And

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Speaker 2: her concern was if people are storing significant amount of

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Speaker 2: money as stable coin balances, like can we really trust

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Speaker 2: these companies to keep that money safe and secure, and

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Speaker 2: like are people kind of going to land in trouble?

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Speaker 1: Wall Street and traditional financial institutions have their own worries.

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Speaker 2: There's a lot of concern from the banking industry that

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Speaker 2: if you can hold money as a stable coin balance

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Speaker 2: and you're earning four percent, then you're going to take

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Speaker 2: your money out of the banking system, and then that's

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Speaker 2: going to weaken the banking industry pretty significantly. You know,

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Speaker 2: if businesses can hold stable coin balances and that's a

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Speaker 2: better way for them to transact, that's a better way

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Speaker 2: for them to conduct business payments, then they're going to leave.

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Speaker 2: That's something that they want to be ahead of. They

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Speaker 2: want to be sure that they're offering a comparable product.

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Speaker 1: Secretary Busson has also talked about the fact that this

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Speaker 1: could that the increased use of or backed stable coins

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Speaker 1: could increase demand for US treasuries and the US dollar.

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Speaker 2: Yeah, so, I mean he's excited about this because it

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Speaker 2: means that more people are buying treasuries to back the

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Speaker 2: stable coins. And I think the other thing that people

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Speaker 2: are excited about is sort of that this is something

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Speaker 2: that can help keep the dollar really relevant and strong

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Speaker 2: currency around the world, because you'll have people in all

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Speaker 2: of these other countries that want dollar access using stable

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Speaker 2: coin as a means for transacting.

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Speaker 1: Big picture, what does this all mean for consumers.

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Speaker 2: I think it's like it so remains to be seen,

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Speaker 2: especially in the US, just because our payment systems today

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Speaker 2: like work pretty well, so whether people are actually using

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Speaker 2: stable coin to check out is kind of remains to

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Speaker 2: be seen. Merchants would maybe really like that to happen

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Speaker 2: because accepting credit cards is expensive. There's a couple of

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Speaker 2: caveats to that though. For example, if you pay with

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Speaker 2: stable coin, it's not a credit product, you have to

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Speaker 2: have the money immediately available. I love paying with my

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Speaker 2: credit card because you know, I haven't been paid yet

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Speaker 2: and it's a credit and iron points. Stable Cooin hasn't

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Speaker 2: really replicated any of that yet, and there's a lot

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Speaker 2: more stable coin linked cards coming to market, So Visa

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Speaker 2: announced a partnership with Striped to kind of enable that

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Speaker 2: so you can actually then start spending your stable coin

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Speaker 2: balance as you would with any other card.

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Speaker 1: What are the biggest open questions that you still have

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Speaker 1: about what this regulation might mean for the stable coin

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Speaker 1: industry and about the use of stable coins moving forward.

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Speaker 3: I'm still super interested in the adoption question.

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Speaker 2: And then the other piece is this interoperability piece, Like

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Speaker 2: if we have all of these different coins that are

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Speaker 2: being issued. What is the mechanism for making them all

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Speaker 2: work together? Right now, I have a dollar, You have

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Speaker 2: a dollar, someone else over there has a dollar, and

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Speaker 2: we can all transact pretty easily.

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Speaker 3: What does that look like for stable coin?

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Speaker 2: It could also be on other blockchains, so you have

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Speaker 2: to figure out ways to make those transactions all work.

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Speaker 2: The big advantages of the card networks is I can

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Speaker 2: walk into any store and I'm really confident that my

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Speaker 2: card is going to be accepted because everyone takes Visa

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Speaker 2: and MasterCard. If I'm walking in with a stable coin balance,

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Speaker 2: it's probably today impossible that I'll be able to Yeah.

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Speaker 1: I was gonna say, like, can you do that anywhere?

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Speaker 3: No, I don't think you can do that anywhere.

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Speaker 2: But like, that's why Visa has stable cooin linked cards

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Speaker 2: so that I can spend my stable coin balance with

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Speaker 2: a Visa card, and Visa becomes kind of an and

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Speaker 2: MasterCard becomes the acceptance brand for stable coin, and so

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Speaker 2: they're kind of still trying to figure out what does

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Speaker 2: that look like, Like how do you build that network

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Speaker 2: of acceptance.

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