Global Market Strategist
A stablecoin is a cryptocurrency whose value is designed to be stable, typically by being pegged to a fiat currency like the U.S. dollar. On paper, they aim to offer the benefits of cryptocurrency — high-speed, low-cost and decentralized transactions — with the stability of traditional assets. Yet despite their promise, stablecoins have existed on the periphery of the mainstream financial system, largely due to a lack of a comprehensive regulatory framework.
The GENIUS Act, having cleared the U.S. Senate, attempts to fix this. If made law, the Act would enforce 1:1 reserves in high-quality liquid assets like Treasury bills and Federal Reserve deposits, mandate anti-money laundering programs, ban interest payments and require regular audits. As a result, stablecoins have newfound legitimacy. It is therefore worth exploring what stablecoins do and the impact they may have on the investing landscape.
The potential use cases for stablecoins are myriad but can be summed up into three categories:
- Bank-alternative store of value: Stablecoins offer a way to save cash while reducing reliance on banking institutions. That said, with USD stablecoins presumably barred from paying interest, their attractiveness relative to deposits, CDs or money market funds is limited — mostly to savers in countries with unstable currencies or runaway inflation.
- Cross-border payments: Stablecoins allow individuals and corporations to transfer assets quickly and inexpensively between regions, even during non-business hours. Moreover, their “programmable” nature — automating transactions to execute when conditions are met — can streamline processes like vendor payment. All of this occurs with an immutable, digitized paper trail, reducing the potential for fraud or error.
- Improving access to blockchain-based marketplaces: Stablecoins eliminate the currency risk inherent in transacting with volatile tokens like Bitcoin, enabling users to buy digitized assets with digitized dollars.
What stablecoins are not, however, is an investment. Their value is designed to remain constant, removing the prospect of capital gains; and their role is anchored in transactions, not wealth creation. Still, their potential impact on the investment universe is far from negligible.
For one, stablecoins may dull the sheen of other cryptocurrencies. Many users drawn to assets like Bitcoin for payments can now transact with stablecoins — without the volatility and with increasing regulatory safeguards. In 2024, stablecoin transfer volumes exceeded $28 trillion, surpassing Visa and Mastercard combined, a sign that real-world use cases are gaining traction.
Second, stablecoin issuers — required to hold reserves in high-quality liquid assets such as short-term Treasuries — may become a growing source of demand for U.S. government debt. The market capitalization of stablecoins has risen to just under 5% of the outstanding short-term Treasury market, and that share could rise further, particularly if foreign adoption scales. This could modestly support Treasury demand, helping to cap yields at a time when issuance is expected to remain elevated.
All told, while stablecoins are not poised to be the next big trade, they do hold the potential to redefine the infrastructure behind global finance.