Time for a sober look at stablecoins

Stablecoins are tradeable and invest in assets like money market funds but exist on a decentralized ledger.

With the Genius Act clearing the Senate and JPMorgan doubling down on stablecoins, it's time for a sober look at what’s really going on.

Forget the hype from crypto evangelists touting a revolution in money, finance, and payments. Let’s cut through the noise.

Under the Genius Act, stablecoins are essentially digital shares of money market mutual funds (MMMFs)—just recorded on a blockchain. These funds invest in cash-like instruments (e.g., government debt, commercial paper), allowing near-instant redemptions at par.

Until they don’t.

In 2008, when the commercial paper market froze after Lehman Brothers collapsed, some MMMFs broke the buck. The most famous case: the Reserve Primary Fund, which saw massive redemptions and ultimately failed.

Stablecoins face the same structural fragility. Even with the Genius Act’s reserve requirements, they’re not risk-free and can still lose their dollar peg. The only way to guarantee stability would be to require 100% backing in central bank money—either vault cash or Fed reserves.

That would effectively turn stablecoin issuers into full-reserve banks. Their tokens would resemble the banknotes issued by private banks in Scotland, Northern Ireland, or Hong Kong—all of which are fully backed by central bank reserves.

So, next time you see glowing posts about stablecoins transforming the future of money, keep this in mind:

1. Only central bank fiat money is truly risk-free.

   
   

2. Stablecoins are blockchain-based MMMFs—and can “break the buck.” Their promise lies in DLT's potential to reduce frictions, especially cross-border.

   
   

3. Banks and tokenized deposits are even riskier than stablecoins—because of fractional reserves—but deposit insurance absorbs some of that risk.

In short: innovation doesn't erase risk—it just reshuffles it.