U.S. Stablecoin Legislation: A New Era

As lawmakers work on a federal framework for stablecoins in the U.S., competition is anticipated from major companies like Uber and Meta.

Senate Banking Committee Chairman Tim Scott (R-SC) has pledged that the GENIUS Act, a stablecoin bill, will be passed by Congress and signed into law within the first 100 days of President Donald Trump’s administration.

Experts note that this legislation may represent a pivotal moment for the industry. While it would create a legal pathway for major stablecoin companies like Tether and Circle, it would also likely intensify competition.

A federal framework could lead many companies to enter the $233 billion stablecoin market, according to Niklas Kunkel, founder of Chronicle Labs. Kunkel stated, “As soon as this legislation passes, there are going to be 10,000 companies looking at this.” He suggested that not only payment companies and asset issuers would be interested, but also tech giants such as Amazon, Uber, Meta, and Google.

Kunkel predicts that about 1,000 firms will launch their own stablecoins within a year of the legislation’s passage. He explained that companies may prefer to issue their own branded stablecoins to benefit from the yield on the underlying reserves.

He cited Paxos as an example of a white-labeled stablecoin issuer, having previously launched Binance’s BUSD and PayPal’s PYUSD.

Stablecoins are digital assets pegged to fiat currencies like the U.S. dollar and backed by reserves that generate yield. Coinbase reported $224 million in revenue from assets backing USDC in the fourth quarter.

The Need for Regulation

An S&P Global Ratings report found that the GENIUS Act could promote greater adoption of stablecoins in the U.S., stating that the lack of regulation has hindered potential growth. Paxos CEO Charles Cascarilla has criticized regulatory overreach for stifling America’s chance for financial dominance through stablecoins.

Despite companies like BlackRock creating tokenized money market funds that resemble stablecoins, S&P analysts noted that inadequate oversight limits their use in everyday payments.

Chronicle Labs is aiming to build a network for oracles, which help blockchains connect to real-world data. Kunkel, who helped launch MakerDAO in 2017, believes the regulatory environment must catch up to innovation. He commented on the slow pace of regulatory progress, stating, “The rate at which that iceberg thaws is going to determine how far into the future we have to look.”

PayPal faced scrutiny from Rep. Maxine Waters (D-CA) after launching its stablecoin in 2023, with Waters emphasizing the need for federal oversight before companies proceed.

Ultimately, the stablecoin legislation may enhance the interplay between the U.S. financial system and the decentralized finance (DeFi) landscape, according to S&P analysis. The analysts concluded that the role of stablecoins will evolve, possibly leading to more integration between traditional and decentralized finance.