Stablecoin Bill Passes Senate, but Treasury Market Risks Loom
The U.S. Senate passed the GENIUS Act to regulate stablecoins, raising concerns about potential instability in Treasury markets.
In a landmark decision for the cryptocurrency sector, the U.S. Senate approved the GENIUS Act on June 17, a bipartisan bill establishing a regulatory framework for stablecoins. With a 68-30 vote, the legislation is now poised for consideration in the House of Representatives, where it must be reconciled with the STABLE Act—another regulatory proposal focused on digital dollar-pegged tokens.
Introduced by Senator Bill Hagerty of Tennessee, the GENIUS Act mandates stringent oversight for stablecoin issuers, including anti-money laundering protocols and a requirement for 1:1 backing with reserves such as U.S. dollars and short-term Treasury securities. Hagerty framed the bill as reinforcing the dominance of the U.S. dollar while bolstering customer protections and Treasury demand. “This bill will cement U.S. dollar dominance,” he declared.
Yet critics caution that this very mechanism—linking stablecoins to short-term Treasurys—could destabilize both markets. Legal scholars Yesha Yadav and Brendan Malone warn that the act effectively turns stablecoin issuers into large-scale buyers of U.S. debt, funneling billions into Treasury bills. In their recent paper, they argue the Treasury market may not be equipped to absorb the mounting liquidity demands of a fast-growing stablecoin ecosystem.
As of early 2025, the stablecoin market has surged to an estimated $230 billion from just $2 billion in 2019. Meanwhile, the U.S. Treasury market, strained by regulatory and technological pressures, has seen tradable debt swell from $4.8 trillion in 2008 to over $28 trillion today. Yadav and Malone caution that, in the event of issuer insolvency or mass redemption—such as the $2 billion USDC exodus following the collapse of Silicon Valley Bank—liquidity could evaporate, triggering systemic financial shocks.
Further complicating the situation is the political climate. Democrats, including Senator Elizabeth Warren and Representative Maxine Waters, have raised alarm over the bill’s origins and its perceived alignment with Donald Trump’s crypto ambitions. “This is a bill that was written by the industry,” Warren said, suggesting it might weaken consumer protections while enriching Trump-aligned interests.
Despite the Senate's bipartisan support, the GENIUS Act faces hurdles in the House, especially from Democrats wary of the crypto industry's influence. Key disagreements remain over federal oversight structure, coordination with state regulators, and the treatment of algorithmic stablecoins.
Yadav and Malone underscore the urgency for coordinated regulatory and market reforms: “The growing interconnection between Treasurys and stablecoins signals a policy imperative to ensure that the advantages of each amplifies the other, rather than their fragilities undermining the whole.”
