The challenge for a multi-stablecoin financial system isn't technical issuance or regulatory clarity -- it's interoperability and liquidity.
Stablecoins backed by US Treasuries are effectively "narrow banking" -- risk-free deposits with no fractional reserve lending, unlike traditional bank deposits that look risk-free via FDIC insurance and regulatory gymnastics but are actually backed by risky lending.
The GENIUS Act codifies this "narrow bank as stablecoin" model except that it prohibits issuers from paying yield directly to holders.
This creates an obvious incentive: if you hold someone else's stablecoin, they capture the yield on reserves. If you issue your own, you keep it, minus whatever you pay to your distributors.
So people ask: won't every platform, wallet, institution, and treasury be tempted to issue their own stablecoin, at least behind their own walled garden?
Then a second, tougher question: How would thousands of stablecoins — or even a half dozen that "really matter" —transact with each other seamlessly at par? What infrastructure enables acceptance and exchange without fragmenting into walled gardens where each stablecoin only works inside its own ecosystem?
Again, the hard challenge is interoperability and liquidity, not issuance.
The answer may determine whether we get an open, composable financial system or a fragmented mess of isolated narrow banks.
Stablecoins backed by US Treasuries are effectively "narrow banking" -- risk-free deposits with no fractional reserve lending, unlike traditional bank deposits that look risk-free via FDIC insurance and regulatory gymnastics but are actually backed by risky lending.
The GENIUS Act codifies this "narrow bank as stablecoin" model except that it prohibits issuers from paying yield directly to holders.
This creates an obvious incentive: if you hold someone else's stablecoin, they capture the yield on reserves. If you issue your own, you keep it, minus whatever you pay to your distributors.
So people ask: won't every platform, wallet, institution, and treasury be tempted to issue their own stablecoin, at least behind their own walled garden?
Then a second, tougher question: How would thousands of stablecoins — or even a half dozen that "really matter" —transact with each other seamlessly at par? What infrastructure enables acceptance and exchange without fragmenting into walled gardens where each stablecoin only works inside its own ecosystem?
Again, the hard challenge is interoperability and liquidity, not issuance.
The answer may determine whether we get an open, composable financial system or a fragmented mess of isolated narrow banks.
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