The case against stablecoins

Katie Martin (0:06)

Pushkin. There's a lot going on. The news flow from Iran, the Middle East and the Gulf is relentless, but we mustn't take our eye or ear off other stuff. One of the other things bubbling up now is stablecoins, crypto-flavoured kinder dollars that live in the virtual world. Donald Trump took a break from Iran earlier this week to lash out at banks which have been pushing back at efforts to draw stablecoin operators into the heart of the financial system. That is unacceptable, he said. We are not going to allow it. In other words, let the crypto in. Now, listeners, do yourself a favour and make a note of this, because maybe not today, maybe not tomorrow, but one day, the impact of giving crypto a seat at the highest tables in finance will bite. Today on the show, we'll tell you why. This is Unhedged, the Markets and Finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a Markets columnist in beautiful, sunny springtime London, and I'm joined, as usual, by the bald eagle himself, Robert Armstrong, off of the Unhedged newsletter in New York. Rob, say hello or give us a squawk.

Robert Armstrong (1:19)

Hello.

Katie Martin (1:23)

But also, we've got an actual brain box in the London studio with me to unpack what's going on. Brendan Greeley, of Princeton University, a proper expert on banks, banking, economic history and money. Brendan, welcome back.

Brendan Greeley (1:38)

I'm a financial historian and I'm here to help.

Katie Martin (1:42)

So, listeners, there's me and then there's two rich, baritone American voices here today. If you get confused, the one who knows what he's talking about is Brendan. So, Brendan, I'm going to put words in your mouth here.

Brendan Greeley (1:55)

I'm waiting.

Katie Martin (1:56)

And say that you don't like crypto very much.

Brendan Greeley (1:59)

I just don't think it's that novel. I just don't think it's special. So I have students and half of them want to go into finance. And they agonize, do I want to go into DeFi or TradFi? And I have this talk that I give them.

Katie Martin (2:14)

So DeFi is like the crypto world, basically.

Brendan Greeley (2:16)

The crypto world or TradFi, which is, I guess, all of the rest of history. And I have this talk I give them where I'm like, my dude, you're going into Fi. It's all the same thing.

Katie Martin (2:26)

It's all the same Fi.

Brendan Greeley (2:28)

So the way I think of crypto is that it's a big fancy word that applies to a lot of different things and a lot of different technology. And I think of crypto as finance as if the past never happened. Everything we're going to talk about today and everything that we talk about under this wide umbrella of crypto has an analog that we already know, that we already understand, that we already regulate.

Katie Martin (2:50)

But that we've conveniently memory hold or completely forgotten.

Brendan Greeley (2:54)

Yeah, that's exactly.

Katie Martin (2:55)

So the crypto universe, to the extent that we're going to talk about it today, splits up into two areas. There's crypto, right? So there's tokens effectively like Bitcoin or Dogecoin or Melania coin or whatever you like. They're all fundamentally the same thing. They just have different values attached to them. People always say to me, I don't understand crypto. Surely it's just like a bit of, you know, it's just a token and it goes up if people buy it and it goes down if they don't. And I'm like, no, you definitely do understand crypto. So that's all there is to it. And then the stable coins, which they're designed to be like a dollar that lives in the crypto ecosystem. So you buy one of these tokens effectively, one of these coins, and it's backed by a dollar that's held by somebody else. So a couple of important things have happened this week. So Bitcoin itself got a bit of a boost earlier this week. It went up to about $72,000. For me, that's $72,000 above fair value, but whatever. And that's because Trump wrote on his social media platform, Truth Social, that, and I quote, the Genius Act is being threatened and undermined by the banks. And that's unacceptable. We're not going to allow it. Right. What is the Genius Act? What is he talking about?

Brendan Greeley (4:11)

So the Genius Act has already been passed. What he means is the progress that was made under this piece of legislation that's already been made law is being threatened. So what it did was define for US regulators, US bankers, what a stable coin is. It basically said, we're going to allow them, and they're going to be regulated at the state level. That means a lot in the United States. It's actually very difficult for audiences abroad to figure out how the American banking regulatory model works because it's so complicated. But broadly, there are two different ways to regulate banks, at the federal level and at the state level. And so, very crucially, the, not just crucially, very crucially, the Genius Act took stable coin regulation and it put it at the state level. You get a state charter to be a stable coin provider. Then it said, you absolutely have to have 100% reserve if I give you a deposit of my fiat dollar and you're a stable coin provider.