The US stablecoin bill faces scrutiny: Tech giants become "banks," and the financial crisis unfolds in "slow motion"?

U.S. Congress members are vigorously advancing a stablecoin regulatory bill; however, this bill is questioned for potentially empowering tech giants to become shadow banks, even sowing the seeds for a financial crisis comparable to that of 2008.

"Slow Motion Car Crash" — Will Tech Giants Become Banks?

The U.S. Senate is pushing forward the first cryptocurrency bill in history, named the "Stablecoin Uniform Standards Guarantee Act" (GENIUS), aimed at establishing a unified federal standard for the issuance and operation of "payment stablecoins."

What concerns the industry the most is that the GENIUS bill would effectively allow tech giants to enter the banking sector without sufficient regulation.

Hilary Allen, a law professor at American University who participated in the congressional committee that studied the causes of the 2008 financial crisis, said:

What keeps me up at night is that this bill will allow the largest tech platforms to essentially become functional equivalents of banks. The last crisis was caused by "too big to fail" financial institutions, yet the scale of some tech platforms makes those (financial institutions) look small by comparison.

Reports indicate that the bill imposes almost no restrictions on tech giants like Meta, Amazon, and Google issuing their own stablecoins. Currently, Meta is rebooting its blockchain strategy, exploring the construction of a stablecoin-based payment infrastructure, intending to deeply integrate digital currency into its platform ecosystem.

The Risks of Stablecoins Are Strikingly Similar to the 2008 Financial Crisis

Supporters argue that if stablecoins are backed by 100% cash reserves, there will be no runs on them. However, Allen points out that this notion is based on "absurdly optimistic assumptions." She stated, "Money market mutual funds are structurally almost the same," and they are not immune to panic that triggers bank runs.

Money market mutual funds experienced runs that required bailouts in both 2008 and 2020, so I think a run on stablecoins is quite likely.

In fact, as early as the collapse of Silicon Valley Bank (SVB) in 2023, the U.S. government had to step in to rescue a certain stablecoin—the bank held over $3 billion in USDC reserves as part of its large uninvested deposits. Allen warned:

We may find ourselves in a position where we essentially have to bail out these large tech platforms.

She referred to the GENIUS bill as a "slow-motion car crash."

Consumer Protection Regulations Are Virtually Nonexistent

Eswar Prasad, a professor of international trade at Cornell University and author of "The Future of Money," pointed out that the bill lacks sufficient measures for consumer protection and limits on companies issuing their own stablecoins. He added:

Furthermore, the Trump administration's push for cryptocurrencies and its light regulatory stance indicate that any such protections and restrictions will not be effectively enforced.

Although Democrats initially opposed the bill, partly due to concerns about the influence of the Trump family's cryptocurrency holdings, some Democrats ultimately abandoned their opposition. Virginia Senator Mark Warner defended his change of stance on Monday, claiming:

Blockchain technology is now inevitable; if U.S. lawmakers do not shape it, other countries will