The GENIUS Act is a disastrous law that poses grave and unacceptable threats to our financial and economic future. Congress must remove those threats by (1) repealing the GENIUS Act and passing legislation that requires all stablecoin providers to be FDIC-insured banks, and (2) adopting legislation that requires all crypto derivatives to comply with the rules governing non-digital derivatives under Title VII of the Dodd-Frank Act.

On July 18, 2025, the President Trump signed into law the ‘‘Guiding and Establishing National Innovation for U.S. Stablecoins Act” (GENIUS Act). The GENIUS Act – despite its Orwellian sobriquet – is a profoundly misguided law that creates enormous dangers for our financial system, economy, and society. The GENIUS Act authorizes nonbanks to issue uninsured stablecoins to the public without the essential safeguards provided by federal deposit insurance and the prudential regulations governing FDIC-insured banks. In addition, the GENIUS Act gives federal and state regulators broad authority to allow nonbank stablecoin issuers to sell highly-leveraged crypto derivatives and other speculative crypto investments to the public.

As shown below, the GENIUS Act plants the seeds for a crypto-fueled “Subprime 2.0” financial crisis that could be even worse than the global financial crisis of 2007-09. The GENIUS Act places the federal government’s seal of approval on uninsured and weakly-regulated nonbank stablecoins as well as hazardous crypto derivatives. By doing so, the GENIUS Act has greatly increased the likelihood that future runs on stablecoins and fire sales of crypto derivatives will trigger systemic crises in our financial markets that have devastating spillover effects on our economy.

The GENIUS Act also opens the door for Big Tech firms and other commercial enterprises to issue and distribute stablecoins and conduct a crypto-based banking business. Allowing commercial and technology giants to offer stablecoins and other risky crypto investments will greatly increase the risk that future crypto crashes will engulf our entire economy. In view of the federal government’s massive debt burden and rapidly rising debt service costs, it is extremely doubtful whether federal agencies could arrange another set of comprehensive bailouts without triggering a sovereign debt crisis.

To remove the intolerable threats posed by uninsured nonbank stablecoins and crypto derivatives, Congress should repeal the GENIUS Act and pass legislation requiring all issuers and distributors of stablecoins to be FDIC-insured banks. Congress should also pass legislation requiring crypto derivatives to comply with the prudential rules established by Title VII of the Dodd-Frank Act for non-digital derivatives.

Uninsured nonbank stablecoins are highly vulnerable to investor runs, which the GENIUS Act will not prevent.

A stablecoin is a crypto-asset whose issuer represents that the stablecoin’s value will maintain parity with a designated fiat currency or some other referenced asset or group of assets. About 98% of global stablecoins are linked (“pegged”) to the U.S. dollar. Dollar-linked stablecoins are functionally equivalent to bank deposits because their issuers represent that their stablecoins will be redeemed or transferred to third parties, on a dollar-for-dollar basis, on their holders’ demand or within a specified time.

The global stablecoin market is highly concentrated. Tether’s USDT and Circle’s USDC account for over 80% of the $300 billion market capitalization of all global stablecoins. Stablecoins are primarily used as payment instruments for speculating in crypto-assets with fluctuating values, with about 90% of stablecoin payments being linked to crypto trades.

Stablecoins are also widely used for conducting illicit transactions. In 2023, stablecoins were used as payment instruments for 60% of unlawful cryptocurrency transactions (including crypto scams, ransomware, evasion of capital controls, money laundering, and tax evasion) and 80% of all cryptocurrency transactions conducted by sanctioned regimes and terrorist groups.

Dollar-linked stablecoins are used to a limited extent for cross-border remittances and other types of conventional payments, especially in developing countries with high inflation rates, unstable currencies, and unreliable banking and payment systems. In those countries, dollar-linked stablecoins provide a more stable form of currency, a more secure form of payment, and a hedge against inflation. At present, however, only 6% of stablecoin transactions involve cross-border remittances and other types of conventional payments. In addition, some governments view dollar-linked stablecoins as a threat to their monetary sovereignty and are considering measures to ban or limit the use of dollar-linked stablecoins in their countries.

Despite the promises made by stablecoin issuers, stablecoins have proven to be anything but stable. More than 20 stablecoins collapsed between 2016 and 2022, and every leading global stablecoin – including USDT and USDC – lost its “peg” on multiple occasions between 2019 and 2023.

Nonbank stablecoins are inherently unstable due to their primary use as “casino chips” for trading (gambling) in crypto-assets with fluctuating values. Bitcoin, Ethereum, and other fluctuating-value crypto-assets have displayed huge price swings because they do not have any substantial underlying real-world assets, and they do not generate independent cash flows from activities beyond the speculative transactions occurring on their blockchains. Prices for crypto-assets with fluctuating values have experienced pronounced boom-and-bust cycles, including the crypto boom of 2020-21, the “crypto winter” of 2021-22, a slow recovery during 2022-23, and a second crypto boom that began in 2024, interrupted by a brief downturn during the first quarter of 2025.

When values for crypto-assets fall significantly, highly-leveraged investors must liquidate their crypto holdings (including stablecoins) to meet margin calls and other debt obligations. The global market value of outstanding stablecoins dropped from $180 billion to $130 billion during the “crypto winter” of 2021-22, when the price of Bitcoin and the total market capitalization of all crypto-assets dropped by 70%. When large numbers of investors are suddenly obliged to liquidate their stablecoins, they must rely on the ability of stablecoin issuers and stablecoin exchanges to redeem stablecoins quickly at the “pegged” value of $1 per coin.

The GENIUS Act permits nonbank stablecoin issuers to hold all or most of their reserves in uninsured financial instruments, such as uninsured bank deposits, money market funds (MMFs), and repurchase agreements (repos). Those uninsured reserves make nonbank stablecoin issuers vulnerable to serious disruptions in traditional financial markets. When Silicon Valley Bank (SVB) failed during the regional banking crisis of 2023, SVB’s largest uninsured depositor turned out to be Circle, which held $3.3 billion (8%) of USDC’s reserves at SVB. USDC broke its $1 “peg” after SVB failed, and its value fell to $0.87. USDC’s stablecoin holders launched a major run, and Circle was forced to liquidate $8 billion of its assets to satisfy redemption demands. USDC avoided a complete collapse – which could have caused a systemic meltdown in crypto markets – only after federal regulators invoked the <a href="https: