If you’re in the market for a new laptop or a pair of shoes, you might be greeted with various payment methods: credit or debit cards, PayPal, Apple Pay, or options to buy now and pay later. However, a new payment alternative could soon appear at checkout: stablecoins. Recently, President Trump enacted the Guiding and Establishing National Innovation for US Stablecoins Act, known as the GENIUS Act, which introduces federal regulations for stablecoins. Many experts believe that these regulations will help integrate cryptocurrency more deeply into everyday transactions, making it a typical payment method. This legislation could fundamentally alter how individuals shop, send money, receive payments, and manage their banking activities.
Understanding Stablecoins
Stablecoins represent a category of cryptocurrency, functioning as digital currency that operates on blockchain technology. They differ significantly from many widely recognized cryptocurrencies, such as Bitcoin and Ethereum, which are known for their extreme price fluctuations. While this volatility attracts investors looking to capitalize on price changes, it also hampers their practicality as a currency for everyday transactions. As their name suggests, stablecoins aim to maintain a consistent value, often pegged to established assets like the US dollar. For instance, tokens like Tether or USDC are designed to hold a value of exactly $1, making them suitable for purchasing goods and services or transferring funds without the significant price volatility seen in other cryptocurrencies.
Benefits of Stablecoins in Financial Transactions
Moreover, stablecoins can alleviate many of the frustrations associated with conventional banking systems. “Many traditional cards impose fees on merchants ranging from 2% to 3%, costs that ultimately affect consumers,” explained Himal Makwana, senior vice president and head of strategy at Fidelity National Information Services Inc. “Conversely, stablecoin transactions can incur costs as low as a few cents, regardless of the transaction amount. This means consumers can enjoy faster access to their funds without the burden of high fees for international money transfers or limitations imposed by banking hours.”
Growth in Stablecoin Popularity
Stablecoins had already been gaining traction even before the GENIUS Act’s enactment. A report from McKinsey & Co. indicated that the circulation of stablecoins had surged to approximately $30 billion in daily transactions over the past year and a half. Despite this growth, stablecoins remain relatively underutilized in everyday consumer transactions, primarily serving as a means for trading among different cryptocurrencies and, to a lesser extent, facilitating international payments.
The Significance of the GENIUS Act
The GENIUS Act marks a significant milestone as the first substantial federal legislation governing cryptocurrency. A secondary bill, the CLARITY Act, has also recently received approval from the US House of Representatives. Upon signing the GENIUS Act into law, Trump remarked that it “creates a clear and simple regulatory framework to establish and unleash the immense promise of dollar-backed stablecoins.” This legislation delineates who is authorized to issue stablecoins and mandates that they maintain a 1:1 reserve in cash or short-term US Treasury securities. In simpler terms, if an individual purchases $1 worth of stablecoin, the issuer is required to hold $1 in liquid assets to back it. Additionally, the act sets forth various marketing guidelines, prohibiting issuers from claiming their stablecoins have federal backing or insurance, alongside implementing anti-money laundering measures.
Implications for Consumers and Businesses
While the details of the GENIUS Act may initially appear technical, its potential to push stablecoins into mainstream use presents several anticipated changes. Credit card processing fees can reach up to 3.5%, with merchants incurring fixed charges per transaction. In contrast, stablecoin transactions are typically under $0.1 and can be settled almost instantly. Consequently, many businesses are likely to adopt stablecoins due to their potential for reduced costs and faster processing times. Initially, consumers may not notice substantial advantages when opting for stablecoin payments over traditional credit cards. “Currently, using stablecoins may not offer significant benefits compared to regular payment cards,” noted Mike Hudack, CEO of Sling Money, a fintech firm that utilizes stablecoins for payment transfers. “Conventional payment cards come with consumer protections that stablecoins currently lack, but this situation may evolve.”
Potential Incentives for Using Stablecoins
Merchants might devise ways to encourage payments via stablecoins, such as offering discounts to customers who choose this method over credit card transactions, based on the savings from lower processing fees. Looking ahead, it’s feasible that retailers may even introduce their own stablecoins. Reports suggest that major companies like Amazon and Walmart have explored this option, which would allow them to retain consumer spending within their ecosystems while cutting costs. However, the broader benefits for consumers remain somewhat ambiguous. Investment banking powerhouse Morgan Stanley likened this situation to digital prepaid gift cards in a recent client report, where customers essentially prepay a retailer to use at a later time. Traditional credit card processing fees currently make micro-payments for small amounts impractical for businesses. However, stablecoins could pave the way for the acceptance of such transactions.
Transforming International Money Transfers
For anyone who has attempted to send money internationally, the challenges and costs associated with such transfers are well-known. The World Bank estimates that sending remittances incurs an average fee of 6.62%, equating to roughly $31 for a $500 transfer, and international wire transfers can take several days to process. The broader adoption of stablecoins could revolutionize this process, significantly reducing both costs and transfer times. With stablecoin transactions, foreign transaction fees are minimal, and transfers can occur almost instantaneously. “What once took days and cost over $30 can now be completed in seconds for less than a penny,” Hudack stated.
Banking Institutions and Stablecoins
Given the potential disruption that stablecoins pose to established financial systems, major banks are investigating the possibility of launching their own stablecoins. Institutions like Bank of America, JPMorgan & Chase, Wells Fargo, and Citigroup are considering this option, either independently or through collaborations. However, the implications for consumers and their banking experiences remain uncertain. Under the GENIUS Act, stablecoin issuers are prohibited from offering interest on the reserves held. Unlike funds deposited in high-yield savings accounts, which might earn interest, money held in stablecoins does not generate earnings. Additionally, funds in stablecoins lack protection from the Federal Insurance Deposit Corporation (FDIC) or the National Credit Union Association (NCUA).
The Future of Stablecoins in Everyday Transactions
If the thought of converting your dollars into stablecoins feels overwhelming, you can take comfort in knowing that many of the changes stemming from increased stablecoin usage will not necessitate an in-depth understanding of how stablecoins function. “Initially, stablecoins will operate behind the scenes,” Hudack explained. “Instead of navigating through traditional banking systems, your payment may be processed over a stablecoin network, allowing for instant settlement.” Consumers won’t need to worry about “converting” their funds into stablecoins any more than they consider the technicalities behind how Netflix streams video content. Hudack pointed to his platform, Sling Money, as an example: it employs stablecoins for transfers, yet users can conduct transactions similarly to other platforms. “The only difference for consumers is that transactions are nearly instantaneous and virtually fee-free,” Hudack concluded. “The underlying mechanics of stablecoins differ from traditional fiat money, enabling numerous new possibilities that simply aren’t feasible with conventional systems.”
