The GENIUS Act is a landmark moment for stablecoin regulation in the US and introduces a step forward in bringing private digital dollars into the regulated financial system. But now comes the hard part: regulators from agencies like the Fed, Treasury, OCC and FinCEN will need to work together to decide how these rules get implemented, are enforced and are evolved.

Stablecoin issuers hold a significant amount of US Treasury securities, which is a conventionally conservative strategy. But even the Treasury markets can be susceptible to strain, and if stablecoins grow large enough, a run could cause these markets to seize. Regulators and policymakers are going to have to face the question of whether stablecoin issuers will have access to the Fed Discount Window, and if not, what if any structural safeguards are needed to protect the US Treasury market?

We’re creating a new global research network to 1) study Bitcoin and stablecoin use, especially in the global south, 2) build technology capacity, and 3) understand how to better design applications and protocols to empower people to financially flourish. We’re starting with an MIT-UnB course open to anyone to teach. Get involved here.

Stablecoins are an extension of today’s monetary system and share many attributes with legacy finance. However, a nuanced analysis reveals crucial differences in financial and technical vulnerabilities. In our latest post from the MIT DCI, we explore some of these differences.

The Crucial Promise

Stablecoin issuers offer a simple proposition: send one dollar to the stablecoin issuer in exchange for a digital token that represents that dollar on a blockchain. That stablecoin, for example, can be used as a payment tool or a store of value, and the issuer promises to redeem it for a dollar later. This simple promise of 1:1 redemption, known as par-value exchange, is more complicated than many realize and depends on a series of assumptions.

Financial infrastructure has long centered on assets in which the spender does not actually hold custody. But self-custody isn’t an aberration ready to be disposed of; it’s a world of potential enhancement to human self-determination! Despite the dominance of intermediated, custodied, payment platforms and shrinking cash use, the rumors of self-custody's death are (hopefully) greatly exaggerated.

A year ago I toured the gold vault beneath the New York Fed. You might recall it from the classic 1995 movie Die Hard with a Vengeance, but in case you aren’t familiar: It’s the world’s largest depository of monetary gold, storing over 6,000 tons 80 feet below Manhattan and protected by airtight vaults and its own police force.

The first thing I thought when I was down there was wow, gold is very shiny. The second was wow, gold bars are surprisingly heavy, in part because of its density (bars are 28 pounds). They make you wear metal shoe covers to hold one in case you drop it on your foot. But the third thing I thought is “THIS is what the global monetary system rests on? This is just so antiquated.”

Five years ago, I was in the Boston area for a week and I hung out at the DCI.

It wasn't much of a space back then—really more like a closet. But there were ethernet ports in the walls, assorted cables, and computer accessories, and a couch with occasional undergrads hanging out, coding, or discussing the finer points of cryptocurrencies. It was welcoming, and a lot of fun. I brought a computer and started working, and talking to people about Bitcoin, and helping some students with their projects…