The Brookings Institution published a white paper titled, "Stablecoins After GENIUS: Private Money, Public Debt, and the Global Dollar," which gives an excellent overview of the stablecoin market. The Abstract says, "This paper examines privately issued U.S. dollar-backed stablecoins and the implications of their potential growth following passage of the GENIUS Act in July 2025. It evaluates USD stablecoins as a form of private digital money and how they can improve domestic and cross-border payments, support the global role of the dollar, and improve the U.S. fiscal position. The paper highlights three tradeoffs for policymakers. First, well-regulated stablecoins can address some inefficiencies and gaps in domestic and cross-border payments through advantages in cost, speed, and 24/7 availability.... But policymakers need to recognize that what makes stablecoins attractive for money and payments also can reduce protections for users, make them more attractive for illicit finance, and weaken the existing financial connections that give sanctions and anti-money-laundering enforcement their force." (Note: Register ASAP for our European Money Fund Symposium show, which will be held in one month, Sept. 24-25, 2026 in Paris, France!)
It explains, "Second, stablecoin growth would increase demand for short-term Treasury bills and lower fiscal costs, but it would also shorten the maturity structure of federal debt and raise the variability of debt service costs, reduce seigniorage revenue, and risk impairing the availability of small business credit. Third, while growing overseas use of USD stablecoins supports the dollar's global role, foreign authorities are concerned about impairing the efficacy of their monetary policy and regulatory oversight and are accelerating their own payment system initiatives.... The paper makes some recommendations for navigating these tradeoffs as regulators finalize GENIUS Act rules and as Congress considers new legislation in the months ahead."
The Introduction tells us, "Stablecoins are digital assets that are issued, stored, and transferred on permissionless blockchain ledgers and backed by reserve assets to maintain stable values. Their development came in response to the high volatility in the value of crypto currencies, like Bitcoin, which limited the use of crypto for making mainstream payments. This paper looks at privately issued U.S. dollar (USD)-backed stablecoins and the implications from their potential growth following the passage of landmark legislation, the GENIUS Act, in July 2025. It evaluates how USD stablecoins function as money -- a private digital dollar -- and as a settlement asset for mainstream payments. It then discusses how they can potentially improve domestic and cross-border payments and, if stablecoin use were to scale significantly, what it might mean for the global role of the dollar and U.S. national security, the U.S. fiscal position, and domestic commercial bank deposits and credit."
It lists several key findings, then states, "[C]ommunity banks face risks of deposit outflows, and these banks are a primary source of credit for small businesses that lack access to larger banks or capital markets. The extent of deposit losses will depend on a number of factors, including how banks respond to new competitive pressures and what assets stablecoin issuers choose to hold as reserves. Even if stablecoins lead to substantial outflows over time, small businesses will likely find credit from other sources, as has been the experience with the growth of other deposit-like substitutes, such as MMFs."
The paper comments, "The USD stablecoin market has grown rapidly but remains small. Total outstanding balances reached approximately $270 billion in June 2026, up from $24 billion in 2020.... For context, M1 money supply -- a measure of the most liquid money consisting of currency, demand deposits, and other liquid deposits -- totaled more than $19 trillion. Tether's USDT, the largest USD stablecoin with a supply worth roughly $191 billion, is not domiciled in the US. Tether is offering a new stablecoin, USAT, in the U.S. to be compliant with GENIUS; current outstandings are only $187 million, but it is aiming for rapid growth in interbank settlement systems and corporate treasuries. Circle's USDC, which is domiciled in the US, is the second largest stablecoin, with issuance valued at roughly $68 billion. USDC has grown at a faster rate than USDT and has applied for a new OCC charter so that it can be used by U.S. residents and firms after GENIUS takes effect. There are other smaller stablecoins, and many have applied for charters since GENIUS passed, suggesting the market structure will continue to evolve."
The piece says later, "Since GENIUS allows uninsured bank demand deposits as reserves backing stablecoins, financial regulators should set higher capital requirements for them relative to currency or T-bills to ensure convertibility at par at all times. The OCC currently is reviewing comments on its proposed regulations that did not distinguish between the risks of uninsured bank deposits and other reserve assets that had no credit or liquidity risks for setting capital requirements. However, absent sufficient capital for uninsured deposits, a bank failure could cause the value of a stablecoin's reserves to fall below the par value of the outstanding stablecoins. The risk of such an outcome could prompt a run on the stablecoin because holders were no longer confident of convertibility at par value."
It continues, "The run in 2008 on the Reserve Primary Fund that held risky commercial paper issued by Lehman Brothers -- which could be comparable to risky uninsured deposits -- illustrates the run risk when risky assets are permitted without enhanced capital requirements to absorb any losses. Runs on a stablecoin could have systemic consequences for other stablecoins that hold similar assets, which could lead to stresses in broader funding markets if stablecoin issuers were forced to sell reserve assets to meet redemption requests."
The paper adds, "GENIUS also permits issuers to hold both repo and reverse repo as reserve assets. While permitting repo (in effect, the issuer borrows cash secured by Treasury collateral) is included to help stablecoin issuers meet liquidity demands, the Treasury collateral could be seized by the lender in the event the stablecoin issuer were to fail. This priority claim means that the value of the reserves could fall by more than the amount of stablecoins. The OCC should address this problem by allowing repo transactions but not permitting them to count as reserves in the segregated pool of assets to be made available to holders in the event of a failure."
It then explains, "Some of this mismatch may be mitigated by ongoing industry efforts to tokenize Treasury securities and government MMFs. In particular, DTCC (the main clearinghouse and securities depository for Treasury securities) is piloting a program to move Treasury securities on chain, whereby securities are moved to its new centralized Digital Account and tokens are issued on a (privacy enhanced/permissioned) blockchain (Canton). Token transfers would allow for 24/7 execution and atomic settlement. This differs from Treasury securities native to a blockchain which are a token representing the actual Treasury security. The security of the tokenization model relies on the cryptographic proof that the on-chain tokens are fully backed by the off-chain Treasury securities, which requires a constant, verifiable link between the custodian's records and the blockchain. In addition, BlackRock currently offers to institutional investors a tokenized government MMF with tokens issued on chain, and supports intra-day redemptions at pre-set time intervals. T+0 redemption is available to USDC via a Circle-operated swap facility at a small discount to net asset value (NAV) or redemption for cash is available at T+1."
The piece recommends, "The OCC (and state regulators, where applicable) should set capital, liquidity, and risk management standards to ensure convertibility at par, recognizing that some reserve assets permitted by GENIUS are not low-risk or highly liquid. Issuers who want to hold riskier assets, such as uninsured bank deposits, should have higher capital requirements. Repo transactions (borrowing based on Treasury collateral) should not be an eligible reserve asset for 1:1 backing in the segregated pool of assets. Holders should be able to redeem directly and on demand from the issuer, not only through authorized arbitrageurs on the secondary market. The current proposal by the OCC falls short of these recommendations and does not distinguish among reserve assets by risk nor create incentives to minimize their holdings of higher risk assets, and would allow two days for timely redemption."
It tells us, "Policymakers should evaluate tokenizing T-bills to address the liquidity mismatch between stablecoins with on-demand redemption and Treasury securities that settle T+1. This need could be obviated by industry efforts to tokenize Treasury securities or government MMFs if the security and resilience of the tokenization models are robust."
The Brookings update says, "We consider four asset categories that might experience reduced demand to support the growth of stablecoins: (i) domestic bank deposits, (ii) domestic currency, (iii) domestic MMFs, and (iv) foreign assets. The allocation is important because each sector differs by how much they already hold or invest in T-bills. For example, if a household sells a MMF share to buy a stablecoin, the stablecoin issuer would buy T-bills and the MMF would sell T-bills. The net effect on T-bill demand would depend on differences between the stablecoin issuer and the MMF in the share of their assets they hold in T-bills.... By contrast, if stablecoin growth comes from residents abroad moving money out of foreign currency and into USD stablecoins, it would generate substantial new net demand for T-bills."
It summarizes, "On net T-bill demand ... if stablecoin growth comes from bank deposits or assets abroad, it leads to significant new net demand. If stablecoin growth comes from substitution away from currency or MMFs, there is less net new demand.... Some have suggested, however, that if stablecoins were not able to pay interest or rewards, their velocity would increase dramatically, because users would minimize the holding period and switch to interest bearing assets, like a tokenized MMF.... However, tokenized MMFs are an investment vehicle rather than a payment instrument and, as such, intraday liquidity may be offered only at pre-set times and require a discount to NAV. It is more likely that corporate treasurers will rely, as they do today, on a combination of payment instruments to meet daily and high-frequency claims and MMFs for yield for claims that may not come due for days or weeks."
They write, "In summary, greater USD stablecoin adoption could create value on net for the U.S. in the near-to medium term. It could improve the efficiency of domestic and cross-border payments, corporate cash management, and institutional settlement and collateral management practices, including by increasing competition and prompting other innovations that bring these benefits. It also could maintain or enhance the role of the dollar in global financial markets and support its value, by ensuring there is a dollar-based digital payment instrument as global payment systems become increasingly digital. However, stablecoins do not yet have sufficient protections for users and against illicit finance, and any additional costs required to add these protections could reduce the net value they create. Greater stablecoin growth could result in a substantial increase in the demand for T-bills, which serve as reserve assets, though some growth could be a substitution from funding credit to small businesses. In addition, the concentration of demand for short maturity Treasury securities carries some risk for higher variability in Treasury debt service costs and greater rollover risk."
Finally, the paper adds, "Over a longer horizon, greater use of stablecoins that leads to material substitution away from money that is not settled by the central bank could create more fundamental risks to the structure of the financial system. The 'wildcat' banking period in the U.S. in the 1800s -- when banks issued their own demand notes without ways to ensure convertibility, leading to inefficient commerce, bank failures, and system collapses -- illustrates the risks. This episode was put to an end by the National Bank Act of 1863 which established a uniform national currency. While current projections for stablecoin growth could complicate monetary policy transmission through a credit or interest rate channel, neither are a real threat at this time. But significant growth over time could create risks to monetary control since stablecoins are money offered by private firms backed by T-bills and private assets, not by risk-free money issued by the central bank. This growth could raise important issues for the Federal Reserve and Congress as to how to accommodate private money that is not protected by the FDIC deposit insurance, Federal Reserve liquidity, and strong financial prudential regulations, which are the foundations in the current system for trust and confidence in money."
