Stablecoins, GENIUS Act, and why do they matter?
There’s a lot going on in cryptocurrency markets and while many still dismiss them as a fad, recent announcements and enacted legislation in the U.S., demands investors begin to pay attention to the emerging asset class, if they haven’t already.
What?
A stablecoin is a type of cryptocurrency designed to maintain a stable value by pegging it to a reference asset, such as a fiat currency (e.g., the U.S. dollar), or a commodity (e.g., gold). This reduces volatility compared to other cryptocurrencies, such as Bitcoin, making stablecoins suitable for transactions, trading, and storing value. Reserves of the pegged asset typically back them, though some use algorithms to adjust supply for stability. The largest stablecoin by market capitalisation is Tether (USDT), with a market cap of approximately US$149.27 billion as of March 2025.
Think of stablecoins as the crypto cash or the ‘cash of the crypto world’. Another expert suggests stablecoins should be viewed as the ‘digital, on-chain representation of fiat money’. Stablecoins represent digital cash, allowing the owner to make instant payments at any time. And because stablecoins operate on blockchain technology, where you can transfer the coins or tokens seamlessly, payments have the potential to be very low fee or fee-free, and instantaneous.
Indeed, certain stablecoin scenarios are ideally suited to the traditional financial services framework, where the flow of funds must align seamlessly with transactions increasingly conducted beyond conventional business hours.
I know quite a few people – usually they’re the 20-something kids of my friends – who have transaction cards supported by stablecoins, with which they book flights, accommodation, and purchase meals and experiences. Indeed, it seems only when they’re in Australia, they discover the cards aren’t widely accepted. Elsewhere, they have no trouble transacting with stablecoins for daily essentials.
Stablecoins then are no longer used exclusively to trade in and out of native cryptocurrencies. They are now, increasingly, being used as a form of digital payment both domestically and even more internationally. The latter is especially evident in that global payment behemoths, including PayPal, Visa, Stripe, and Mastercard, Revolut and Ripple have all integrated stablecoin payments onto their payment platforms or issued their own stablecoins.
Types of stablecoins
While there are diverse stablecoins, essentially, there are two categories and only one that most people will be interested in. The first are Fully Reserved Stablecoins. These are anchored, typically on a 1:1 basis, by high-quality, liquid assets such as fiat currency or short-term government securities held in reserve (expect demand for Tbills for example, to rise). Each coin issued is underpinned by a corresponding asset, ensuring price stability with something approximately unwavering reliability. For US$10 billion in stablecoins, the issuer must hold at least US$10 billion in fiat currency reserves.
And then there are Algorithmic Stablecoins. These maintain their peg through sophisticated smart contracts that dynamically adjust to supply and demand fluctuations by minting or burning tokens. Should an algorithmic stablecoin trade above its peg, the protocol issues additional tokens to temper its price; conversely, if it falls below, tokens are burned to elevate its value.
It will be the fiat-backed stablecoins most will experience in their future daily lives.
The latest development
In the United States, after the Senate Banking Committee passed the GENIUS Act in March, and the House Financial Services Committee passed the STABLE Act in April, the GENIUS Act was signed into law on Friday, July 18, 2025.
The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) is the first major crypto legislation in the United States.
The Act establishes both a state and federal pathway for approval as a permitted payment stablecoin issuer. This includes non-banks, subsidiaries of insured depository institutions and state-chartered entities.
Financial regulators are now required to ensure that stablecoin issuers are compliant, and by doing so, they will legitimise the asset class by ensuring that stablecoin issuers are well-capitalised, capable of meeting consumer redemption requests, and have similar consumer and anti-money laundering protections as established financial market participants.
And under the GENIUS Act, reserve requirements mandate that each stablecoin be backed 1:1 with U.S. dollars, short-term treasuries, and other high-quality liquid assets (HQLA).
Importantly, while issuers of stablecoins are prohibited from offering yield or interest, the Act is silent on exchanges. Technically, then, the Act, as it currently stands, does not prohibit stablecoins paying rewards as a ‘yield’ or ‘interest’, which means stablecoins may eventually compete with bank deposits.
Growth and relevance
The latest development in cryptocurrencies matters because the bigger the stablecoin market becomes, the greater its impact on the broader financial system.
The U.S. dollar-denominated stablecoin market makes up approximately 99 per cent of the global stablecoin market. It has grown to US$225 billion, accounting for a little less than eight per cent of the estimated US$3 trillion cryptocurrency market. With a two-thirds share, the USD stablecoin market is dominated by USDT, which is issued by Tether. As an aside, Tether, an offshore crypto firm, has its reserves managed by Wall Street investment bank Cantor Fitzgerald. Cantor Fitzgerald’s CEO since 1991 is Howard Lutnick. Since early 2025, Lutnick has served as the 41st United States Secretary of Commerce under President Donald Trump. Lutnick also served as co-chair of Trump’s transition team, leading efforts to vet personnel. According to The Wall Street Journal, Cantor Fitzgerald struck a deal in 2024 to receive a five per cent stake in Tether.
According to Politico.com, Lutnick is “Tether’s highest-profile proponent in the U.S. business community, defending the company against claims that its token is used in illicit finance and vouching for the legitimacy of its reserves. He has also touted stablecoin adoption as a way to promote dollar hegemony, which he calls “fundamental to the United States of America.”
Politico.com also noted in November last year, “Some in the crypto space expect [Lutnick’s] selection to be a boon for Tether – and it comes as the firm is facing potential scrutiny from U.S. law enforcement. The Treasury Department has for months been considering sanctioning Tether over its alleged role in facilitating illicit finance and money laundering.”
It’s worth noting estimates are that less than two per cent of daily stablecoin transactions are related to illegitimate or nefarious business. One presumes a similarly small level of perversion exists in daily fiat currency transactions.
Presumably, through regulation and oversight, observers can expect transparency and legitimacy to replace what many had hitherto perceived as the crypto market’s ‘wild west’ characteristics.
J.P. Morgan analysts expect the value of the stablecoin market to grow as the broader crypto market stabilises or even declines as stablecoin use cases and adoption mature. Their conclusion is that recent legislation “gives the green light to a lot of market participants to start engaging in this asset class, which should, as a result, accelerate stablecoin adoption.”
J.P. Morgan notes the stablecoin market will still take time to develop, saying, “There are reports out there that say stablecoins could grow to US$2 trillion by the end of 2028, which we believe is a little bit optimistic”, adding, “A more realistic scenario is that the market could grow two to three times from where we are right now in the next couple of years which is equivalent to US$500 to US$750 billion.” The investment banks says that they find it hard to believe the market can grow substantially larger until the infrastructure/ecosystem that supports stablecoins is further developed, noting, “liquidity investors, whether retail or institutional, are not going to immediately jump into payment stablecoins as a cash alternative” because they tend to be very conservative.
But as stablecoins gain acceptance, issuers will need to back their reserves with liquid assets of high quality, and the law requires a backing of 1:1. The GENIUS Act specifies that only the following assets are permitted.
- Insured deposits,
- Treasuries (with a maturity of <93 days),
- Reverse repos (with a maturity of <7 days backed by Treasuries or maturity of 1 day backed by T-bills <93 days),
- Treasury MMFs,
- US currency,
- Potentially central bank reserve deposits.
According to J.P. Morgan research, the stablecoin market is estimated to generate additional demand of US$250bn-US$500bn for high-quality liquid assets (HQLA) such as Treasury bills and repurchase agreements (repos) over the next few years, potentially making stablecoin issuers the third-largest buyers of US Treasury bills (US$350-US$525 billion).
Currently, stablecoins hold approximately US$114 billion in T-bills, which accounts for 60 per cent of stablecoin reserves, and US$38 billion in repos (20 per cent), comprising just two per cent of the T-bill market.
Risks and final thoughts
There are always risks, including the possibility that increased stablecoin demand could strain T-bill/repo supply, potentially crowding out other buyers and artificially suppressing rates. Meanwhile, excess demand may increase reliance on the Federal Reserve’s (the Fed) reverse repo facility. And finally, if stablecoins grow materially and subsequently face a redemption ‘run’, it could destabilise the underlying asset markets.
The passage of the GENIUS Act and the acceptance of stablecoins by companies like Visa and Mastercard suggest that stablecoins are now a permanent feature of modern finance and will increasingly be used for digital payments. The GENIUS Act may also go some way to cement the US Dollar’s status as the Reserve Currency – a benefit that Trump and his representatives would not have missed.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
