Executive Summary:
Now that the GENIUS Act has established a framework for stablecoin issuance with safeguards for consumers, we expect stablecoin usage to proliferate. Because stablecoins are backed by liquid assets such as Treasury bills, their proliferation is likely to affect bond market dynamics. Because stablecoins can be used for transactions, they’re likely to shrink the markets for other cryptocurrencies that can’t be, like bitcoin. Because stablecoins are a new M1 component, they’re likely to reduce the Fed’s control over the money supply. How stablecoin’s uptake will alter monetary policy, interest rates, and the federal debt is hard to predict. Stephen Miran theorizes that stablecoin proliferation will lower the neutral interest rate, requiring the Fed to ease accordingly. We aren’t convinced.
Crypto I: Dr Frankenstein & Stablecoin
Dr Victor Frankenstein must have been a genius. He sought to conquer death by constructing a living being from assembled body parts. He succeeded in doing so. Unfortunately, his efforts created a monster. Today, financial geniuses are creating cryptocurrencies powered by blockchain. One of their innovations is stablecoin. The question is whether their creations will make our financial lives better or produce monstrous financial nightmares.
The dollar version of stablecoin is a cryptocurrency that is pegged to the dollar on a one-to-one basis and is fully collateralized by US Treasury bills or other liquid assets such as bank deposits and government money market funds. Blockchain’s technology automatically secures the ownership of the
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