How Stablecoins Affect Financial Markets

The crypto circle has been abuzz about the #GENIUS Act and how it provides a regulatory clarity for #stablecoins. But what’s truly interesting to a policy nerd like me is the macro impact potential. Here’s what caught my eye 👇 🏛️ The U.S. government just quietly found a backdoor way to cover budget deficit: The GENIUS Act says: if you want to issue a stablecoin, you have to hold real dollars or ultra-safe U.S. debt (T-bills) behind every coin. Sounds simple. But here’s what that really means: Stablecoins now have to buy government debt constantly. That means more demand for Treasuries → cheaper borrowing for the government. It’s like selling more bonds without needing foreign buyers or the Fed. 📉 It could impact interest rates. As stablecoins buy short-term debt, those yields drop. But long-term rates might stay high or even rise. We could end up in a strange world where: Money moves faster and cheaper on-chain (inside the digital economy) But borrowing in the real economy for homes, small business loans actually gets more expensive. 🏦 It might make life harder for banks. Banks usually lend out your deposits. But if dollars move into stablecoins (which just sit in reserves), banks are left with: -Fewer deposits -More competition to attract funding -Less control over where money flows And when the Fed raises rates, it won’t work the same way because stablecoins don’t respond like banks do. #GENIUSAct #Stablecoins #Macro #FinTech #DigitalDollar #Treasuries #Banking #CryptoCompliance

🔹 The BIS Report on the ‘Not-So-Stable’ Truth About Stablecoins. What the Bank for International Settlements – BIS Just Uncovered — and Why It Matters for #Payment Professionals. 🔍 1. Stablecoins fail the "sound money" test The BIS flags three core criteria where stablecoins fall short: - Singleness: No guarantee of universal 1:1 acceptance. Unlike central bank money, #stablecoins (USDC, Tether, etc.) are cryptoassets requiring conversion back to fiat and may not always trade at par. - Elasticity: They lack the capacity to scale liquidity across economic cycles like central banks can. - Integrity: Many stablecoins skirt robust KYC/AML protocols and are exploited for illicit finance. - Implication: Without these, stablecoins are weak substitutes for fiat-- at best a niche bridge to crypto. ⚠️ 2. Deployment scale & volatility risks - Market size: Issuance stands between $200–260 billion, dwarfing before—but dwarfed by—the $18.7 trillion in USD money supply and liquid deposits. - Volatility: Data shows annualized swings in peg and redemption dynamics—highlighting fragility during stress. - Fire‑sale contagion: Sudden redemptions could destabilize U.S. Treasury markets since stablecoin issuers held ~1.6% of T‑bill issuance—big enough to affect yields. 🌐 3. Financial stability & monetary sovereignty threats - Illicit use: Stablecoins are labeled the "go‑to choice for illicit use" with limited transparency—enhances AML/CB process risk. - Emerging market impact: Cross-border stablecoin adoption could reduce FX controls, spur capital flight, and erode local monetary sovereignty. ⚙️ 4. Pressure points & limitations of private issuers - No lender of last resort: Crypto issuers lack central bank structures to offer liquidity support, risking payment gridlock under stress . - Free-banking relapse: BIS likens the risk to 19th-century unsound banks—“we could relearn historical lessons about limitations of unsound money.” 🌟 5. BIS-endorsed alternative: tokenized central bank money (TCBM) - Project Agorá: A global effort with 7 central banks and ~43 private partners to build tokenized ledgers combining central-bank reserves, deposits, and securities. - Advantages: Maintains “singleness, elasticity and integrity” while enabling faster, programmable cross-border payments. - Governance issues: Requires careful coordination on access, legal clarity, and regulation . ✅ Summary for payments professionals - Stablecoins are scalable tools in crypto rails, offering low-cost cross-border reddemability—but not viable as mainstream money without central-bank backing. - Their systemic footprint ($200b+) and fragility can pressure liquid markets and monetary stability. - Without proper regulation or transparency, they present integrity and AML concerns at scale. - Tokenized central bank money emerges as a robust, programmable, and sound alternative that preserves trust, liquidity, and public governance.

Just published an article with the Financial Columnist with an analysis on how #stablecoins are already distorting U.S. Treasury yields and reshaping the transmission of monetary policy. According to Bank for International Settlements – BIS data, a $3.5B stablecoin inflow dropped 3-month T-bill yields by 2 BPS; the same outflow pushed them up by 6 BPS. This isn’t hypothetical—it’s happening now. As programmable value becomes financial infrastructure, the key question is: What role will these instruments play in the future financial system, and who will govern them? Drop your thoughts in the comments! #DigitalAssets #Stablecoins #MonetaryPolicy #Tokenization #Fintech #FinancialInfrastructure #CBDC #RWA #Deposittokens #Banks