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- DOESN’T TAKE A GENIUS
BLUF*
On June 17, 2025, the Senate passed the GENIUS act.
The U.S. House will rubber-stamp it. Our POTUS, Trump signaled his support.
*Bottom Line Up Front
Good morning
And good riddance to the anti-progress extremists wailing and gnashing their teeth over improving the US financial system.
For the first time, Congress appears poised to enact major legislation impacting DeFi & crypto, and unsurprisingly, the thing that comes first is the thing most relevant to the dollar itself: stablecoins.
Congress came up with the Genius act—which amusingly, lifts its framework straight from 2018’s NYDFS regulations (which itself is lifted from the Fed’s money market reform efforts) - which is great because including the ones I ran, no NYDFS regulated stablecoins have had peg stability or reserve sufficiency problems.
From the repair work after the collapse of the Reserve Fund in 2008 to the Genius bill in 2025, our regulators have tightened up what's legally allowed to call itself "stable".
The oncoming sound of the train of progress is growing louder by the week. Circle had one of the most successful IPO debuts ever. JPM announced they're putting their deposit token on a public blockchain. And those who are not listening or are not prepared are likely to be run over.
Until next time,
Austin Campbell
Teaching Blockchain & DeFi at NYU
Teaching institutions at Zero Knowledge
ZERO IN
GENIUS ACT
Borrows much of the New York Department of Financial Services (NYDFS) regulatory framework for stablecoins, standardizing a specific set of 1:1 fiat-backed stablecoins as legally speaking, a stablecoin.
OPENING THE “GENIUS” BOX
RESERVES→ Only bank deposits, T-bills, and overnight repos
SEGREGATION→ Assets held for stablecoin holders only (no leverage!)
OVERSIGHT→ Fed & OCC supervision for big issuers
AML/KYC →No more "issue and pray" strategies
Genius makes stablecoins look like some sort of mythological monster combination with the head of a money market fund, the body of a bank, and the tail of a payments company. These are all known quantities that we have been a range of somewhat to very successful keeping stable historically.
The fact that stablecoins will be moving into the regulatory perimeter means we will have greater transparency (no more Tether-style black boxes), greater stability in reserves (no more bank commercial paper), and no more wildly complex designs that are more like the financial equivalent of a rube goldberg machine than a stablecoin (bye, Terra).
Will it work? Yes. Why do we think that? Because this is known stuff that already works.
REALITY CHECK — STABLECOIN FACTS
Since 2018, the NYDFS has regulated stablecoins
Under the NYDFS framework, zero stablecoins have failed
Why? NYDFS copied what worked—regulations for gov. money market funds
Copying the reform efforts from 2008 that improved things and applying them to stablecoins means we know how those things work already
PERSPECTIVES
Genius is a riff on the work of the NYDFS, which is a winning framework for stablecoins. They walk, talk, and smell like a product that is as safe as a gov’t money market fund and as easy to use as e-money. Why do I think this? As Head of Portfolio Management at Paxos, I managed the largest ever NYDFS-regulated stablecoin (>$23.5B at the peak), backed 1:1. BUSD was one of two stablecoins to ever go from tens of billions to zero, and this one returned all the money with no drama and no issues (which is why I am writing a newsletter and not in jail). It works, so why not just copy it?
So, no, stablecoins won’t destroy the financial system anymore than Vanguard running a government money market fund destroyed everything. Sometimes boring is good!
It’s also worth looking at things from a crypto-ecosystem perspective, and specifically on the assumption that the regulation of stablecoins, and the increasing sophistication and ease of use of decentralized finance products, will combine to accelerate the already rapid mainstreaming of “DeFi.” Two risky scenarios suggest themselves: First, your mind would be absolutely blown by the places a VPN, some USDC, and a dream will take you in the world of exotic DeFi markets. Broadly speaking, this can include a lot of leveraged strategies that would become perhaps increasingly subject to retail frenzies and collapses, potentially reaching systemic scale.
The other risk is more pedestrian: digital cash is different than balances on a bank’s website, in the specific sense that many such transactions are materially irreversible. This has significant implications for the cybersecurity and private key management practices of end users, and could worsen the harm caused by online predators of various sorts.
WHO CAN STABLECOIN?
GENIUS allows U.S. financial companies to issue stablecoins (banks, asset managers, payments companies)
For e-commerce, media, and foreign companies? For Amazon? Walmart? No (probably).
There is a little thing called the Bank Holding Company Act (BHCA) that prohibits your bank from getting into all kinds of unrelated businesses, which is why Bank of America doesn’t have a search engine and Citi doesn’t build cars.
Genius understands this and also creates the logically consistent reverse condition: Facebook shouldn’t be able to use a social media monopoly to become your bank.
Seems fair?
ZERO OUT
STABLECOINS ARE HERE TO STAY.
Starting up? Strike hard. Strike right.
Circle had great timing to go public before a wave of stablecoins from asset managers, banks, and payment companies hit the ground, leading to one of the most successful IPOs of all time… so far.
Crypto came from a largely, crypto-native bubble of builders, but as we see the canonical start of the first mainstream use case, financial infrastructure and stablecoins. Consider GENIUS Act the first manifest event - a once in a lifetime : “iPhone” moment.
But now that the regulators cleared the way, stablecoin competition isn't just Tether or DAI anymore—it's JP Morgan, Morgan Stanley, Visa, and more - a different kettle of fish - and to compete, new crypto-native stablecoins will need to stand up to them.
Already, the banks are waking up. JPM just announced they are putting their deposit token (JPMD) on Base, the public L2 run by Coinbase. Bank of America’s CEO, Brian Moynihan, has spoken about the need for the bank to get involved in the stablecoin game (and perhaps to launch their own). It remains to be seen if banks will be able to shed their incredibly risk-averse bunker mentality to truly compete, but they have large enough balance sheets and customer bases that if they do, they will be fearsome competitors. Perhaps the best hope for many crypto natives is that the banks remain NGMI in their mentality and cling to the relics of the past, namely their walled garden systems built on COBOL.
Will they? Betting on competition to continue to be stupid is often profitable, but very dangerous when it goes wrong.
1 If you want to read the long-form about GENIUS ACT changes and how it is going to progress the financial system and space, you can do so at Zero Insights.
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