Dominika Zarzycka/SOPA Images/Sipa USA via AP Images
Elon Musk, who is a trader and booster of crypto, would likely favor a means for users to trade crypto on his X Money platform.
The crypto industry spent lavishly to buy a friendly Congress in the 2024 elections, with their donations making up almost half of all corporate donations to PACs last year. They hope this week will begin the return on that investment—with assistance from Senate Democrats.
The Senate Banking Committee is expected this week to mark up the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a Republican-led bill co-sponsored by Sen. Kirsten Gillibrand (D-NY), the new chair of the Democratic Senatorial Campaign Committee. Gillibrand has worked for years to push industry-friendly crypto legislation through Congress, and she may have hit on a winning formula, with a critical mass of Democrats having received millions from crypto PACs and ready to collaborate with Republicans and the Trump White House.
But consumer protection advocates, other senators, and even crypto-leaning regulators have warned that the GENIUS Act would create a Wild West in stablecoins, provide weak standards, deprive users of financial security, and give Big Tech firms (like Elon Musk’s X) the ability to create a lightly monitored private currency.
Negotiations are ongoing on the bill, and a new version is supposed to be released today. Defenders argue that it’s critical to enhance safety in crypto markets. “That’s reasonable, but if you do it wrong, you can create the crisis you sought to avoid,” said Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform. “By bringing [stablecoins] closer to mainstream finance, if one of them crashes you can create contagion.”
This debate is happening while Democrats struggle to devise a strategy to resist the Trump administration. On issues like tax cuts for the wealthy or cuts to Medicaid, Democrats are relatively united; but quietly, many appear eager to give the crypto industry and Big Tech the items on their wish list. The GENIUS Act sits at the top of it.
STABLECOINS ARE CRYPTO ASSETS INTENDED TO FUNCTION like the money in a bank deposit or a money market fund, with their value pegged to the U.S. dollar or some other standard. This makes stablecoins useful, industry actors say, as a way to trade, settle, or pay for goods and services. Mostly, they’re used to buy and trade other crypto assets.
Stablecoin issuers claim that they are backed by enough assets to ensure a constant value. But a study of over 60 active stablecoins from the Bank for International Settlements found that all had lost their peg at one point or another. And unlike bank deposits, the government has no insurance for customers who may get wiped out if a stablecoin collapses.
In some ways, that’s what the legislation is designed to combat. Written by Senate Banking Committee member Sen. Bill Hagerty (R-TN) and co-sponsored by committee chair Sen. Tim Scott (R-SC) and Sen. Cynthia Lummis (R-WY), the GENIUS Act creates a framework whereby stablecoin issuers under $10 billion would be regulated by states, and issuers over $10 billion regulated by the Federal Reserve or the Office of the Comptroller of the Currency. New rules would include licensing procedures, compliance with anti–money laundering and sanctions laws, what is termed as 100 percent reserve requirements for the backing assets, and processes if the stablecoin issuer goes into bankruptcy. But the explanation of the bill explicitly states that regulation will be “light-touch” and that supervision, examination, and enforcement would have “clear limitations.”
The bill, one of two big priorities for the industry (the other is a “market structure” bill to get enforcement away from the Securities and Exchange Commission), resembles prior stablecoin legislation pushed by Republicans, including Rep. Patrick McHenry (R-NC), former chair of the House Financial Services Committee who now is working in the crypto division of venture capital firm Andreessen Horowitz. The White House has been very interested in getting crypto legislation passed while they ramp down oversight from financial regulators.
House Financial Services ranking member Maxine Waters (D-CA) has a competing bill that would put all issuers under Federal Reserve oversight, prevent Big Tech platforms from creating a stablecoin of their own, and seek to stop offshore firms from evading regulations. Some of those aspects might be included in the new version, though it is expected that any changes would be minor.
Gillibrand’s participation has always given a bipartisan patina to crypto bills tilted to industry. There are one current and eight former staff members in Gillibrand’s office with experience in the crypto, financial services, and high-tech industries, including a VP and general counsel at Coinbase, executives at Barclays Bank, Meta, and Google, and lobbyists for crypto firms Grayscale and dYdX, financial firms JPMorgan Chase and Mastercard, and online trading platform Robinhood. Since 2020, Gillibrand has received $259,750 in campaign donations from crypto companies, and another $2.2 million from financial companies, according to campaign finance disclosures. Disgraced FTX CEO Sam Bankman-Fried, Andreessen Horowitz co-founder Ben Horowitz, and the Winklevoss twins (who run crypto firm Gemini) are past donors.
“Senator Gillibrand makes decisions about policy based solely on how it will affect the lives and financial security of everyday New Yorkers,” said spokesperson Evan Lukaske in response to questions from the Prospect. But if it’s expected for statewide politicians in New York to defend finance and Wall Street, Gillibrand appears to be extending that tradition to crypto.
Wyoming Republican Lummis has been Gillibrand’s main partner on pro-crypto initiatives. She even has a joint fundraising committee with Lummis, called the Financial Innovation Victory Committee, that has raised hundreds of thousands of dollars and was established days before the two released the pro-crypto Responsible Financial Innovation Act in 2022. The Gillibrand-Lummis Payment Stablecoin Act, introduced but not passed in 2024, is a close cousin to the GENIUS Act.
Gillibrand even published an op-ed promoting the GENIUS Act at CoinDesk, the website covering the crypto industry. The sentiments in it are similar to the statement she gave the Prospect. “There are many reasons that Democrats and progressives should and do support stablecoin legislation,” Gillibrand said. Among other points, she touted the potential to reduce the cost of remittances, expand financial inclusion, and fuel innovation. “The simple fact is that blockchain, digital assets, and cryptocurrencies are moving ahead. The European Union and other actors have already passed substantial regulation to encourage and enable technological innovation. The U.S. is trailing and we cannot risk falling further behind.”
Some progressives disagree.
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Sen. Kirsten Gillibrand (D-NY), seen last month at a committee hearing on Capitol Hill
THOUGH BILL SUPPORTERS STRESS WHAT THEY CALL stringent reserve requirements for stablecoin issuers, the GENIUS Act version released earlier this year would permit uninsured U.S. bank deposits or offshore deposits as backing assets. Capital and liquidity standards, as the authors admit, would be limited. Unlike the Waters bill, issuers could have a criminal history. And issuers could gain access to the Federal Reserve payment system, a long-sought wish for non-banks that would let crypto firms use the money-transferring tools of the central bank and bring them inside the financial system.
The Consumer Financial Protection Bureau would not have explicit oversight of stablecoin issuers and wallets under the bill, and federally licensed stablecoins could preempt any state consumer protection laws. Stablecoins below $10 billion could seek a state license without federal oversight, potentially creating a race to the bottom. “Everyone believes [the state license] will be like the New York system which is not amazing but better than some,” said Hays. “But it’ll be more like the Wyoming regime, where anyone can issue a stablecoin.” (Lukaske, Gillibrand’s spokesperson, said this mischaracterized the structure and that state regulatory frameworks would have to be “substantially similar” to the federal standard and certified by the Treasury secretary.)
While the GENIUS Act says that depositors will have “priority” in bankruptcy, and Lukaske clarified that depositors would be “first in line in the event of any insolvency,” that’s not a guarantee (as deposit insurance would be) that customers will get back their money in a timely fashion if an issuer becomes insolvent. “I fear that this legislation is going to make unsophisticated investors wrongly believe that credit risk on stablecoins is not an issue,” wrote Adam Levitin, a law professor at Georgetown, at the blog Credit Slips. “If that happens, the GENIUS Act is setting the stage for a federal bailout of disappointed cryptocurrency investors when a stablecoin issuer goes belly-up and investors discover that they don’t have the protections they thought they had.” An implicit bailout is a subsidy for crypto firms.
One particular concern involves Tether, an offshore company founded by a former child actor from The Mighty Ducks. Tether is also the largest stablecoin by volume. “Practically speaking it’s the central bank of crypto,” Hays explained, but rumors of a lack of legitimate reserves and dodgy management have dogged it. On paper, the GENIUS Act bars Tether and other non-U.S. issuers from issuing stablecoins directly. But they could be issued offshore and then traded onto platforms that serve U.S. customers, a fairly common practice. It’s an easy way to evade the restrictions in the bill. (Incidentally, the bank that holds Tether’s assets is Cantor Fitzgerald, which until a couple of months ago was run by Howard Lutnick, Trump’s commerce secretary.) The Tether loophole is one of the elements that will be updated in the new draft released Monday, Lukaske said.
But the biggest concern about the GENIUS Act is that it allows nonfinancial companies, particularly Big Tech platforms, to issue stablecoins of their own. In 2019, Facebook attempted to create its own currency, called Libra. It failed amid bipartisan outcry. But the GENIUS Act gives Big Tech all the tools it would need to restart that initiative.
This is a particular concern with Elon Musk’s X Money project. Musk, who is a trader and booster of crypto, would likely favor a means for users to trade crypto on his platform. And he’s very comfortable with stablecoins: Musk’s companies SpaceX and Starlink use stablecoins throughout the world, and he was a key early investor in Stripe, which recently acquired Starlink’s stablecoin processing platform Bridge.
The GENIUS Act “will clear the decks for Elon to issue X Money as his own stablecoin, without any guardrails to protect consumers, to protect national security, or to protect the financial stability of our economy,” said Sen. Elizabeth Warren (D-MA), a primary opponent of the bill, on the Senate floor last week. “Republicans are setting the stage for the richest man in the world to issue his own currency that competes with the U.S. dollar.”
Lukaske responded that “the idea that anyone could create a private currency is false.”
Even Timothy Massad, former Democratic chair of the Commodity Futures Trading Commission, an agency seen as having some sympathy toward crypto, told a Senate hearing in late February that while a regulatory framework for digital assets is desperately needed, the limitations on capital and liquidity requirements, the weak bankruptcy framework, and the loophole for offshore firms like Tether in the GENIUS Act were all cause for concern. “Yes, we need clarity of rules,” Massad said. “But we need the right rules.”
Jonathan Raa/Sipa USA via AP Images
Before the election, Trump issued a meme coin that was a transparent effort to trade off MAGA hero worship.
AS THE TOP DEMOCRAT ON THE SENATE BANKING COMMITTEE, Warren is the party’s leading authority on financial matters. But money talks on Capitol Hill, and lately industry money has been quite loud. Even though any stablecoin bill will need 60 votes to overcome a Senate filibuster, Republicans are confident that they will get at least that, with cooperation from their Democratic counterparts. That’s why they set the markup for this week.
Sen. Ruben Gallego (D-AZ), who was made ranking Democrat on a new digital assets subcommittee of the Senate Banking Committee, received millions from the main crypto PAC in his swing-state victory in 2024. So did Sen. Elissa Slotkin (D-MI), who gave the Democratic rebuttal to President Trump’s speech to a joint session of Congress, and Sen. Adam Schiff (D-CA), who saw millions in crypto funds take out his chief rival for the open seat, former Rep. Katie Porter (D-CA). Sen. John Fetterman (D-PA) also received crypto donations in his 2022 run for the Senate.
Gallego has called the GENIUS Act “very favorable,” and Sen. Mark Warner (D-VA) has expressed interest as well. First-term Banking Committee member Sen. Angela Alsobrooks (D-MD) has endorsed the GENIUS Act already, and Sens. Lisa Blunt Rochester (D-DE) and Andy Kim (D-NJ) could also support the bill. It remains possible that committee Democrats will seek amendments to enhance consumer protection and anti–money laundering features in the bill. Gallego and Warner did not return a request for comment.
Gillibrand is obviously on board, though she doesn’t sit on the Banking Committee. As the head of the DSCC, a pro-crypto posture among her fellow Democrats could benefit her fundraising efforts. She told Politico recently that several Democratic senators “want to get involved in this space.”
Last week, the Senate approved a resolution that would strike down an IRS rule requiring reporting by brokers who conduct digital asset sales. Seventy senators voted for the resolution, including 18 Democratic caucus members, among them Alsobrooks, Fetterman, Gallego, Gillibrand, Kim, Schiff, Warner, and even Senate Minority Leader Chuck Schumer (D-NY).
If there are supporters on the Democratic side in the Senate, there are probably more in the House. Rep. Ritchie Torres (D-NY) just launched a bipartisan Congressional Crypto Caucus, and a pro-industry bill got dozens of Democratic votes last year.
That the GENIUS bill is a priority for the White House and the Senate Republican leadership, to be rushed through Congress in the first hundred days, has not deterred Democrats from backing it. But in the context of President Trump’s illegal dismantling of agencies and commandeering of Congress’s power of the purse, his maneuvers on crypto in particular make it confounding why Democrats would throw their support his way.
Before the election, Trump issued a meme coin that was a transparent effort to trade off MAGA hero worship and get millions in tribute from people with business before the government. Predictably, $Trump ended up crashing, earning insiders almost $100 million in trading fees and more in early cash-outs, but leading to major losses for nearly one million users. Even industry executives were jittery about the $Trump gimmick making a mockery of what they’ve struggled to present as a legitimate business. The Securities and Exchange Commission recently declared that meme coins are not securities and therefore will not be subject to SEC oversight.
Then, earlier this month, Trump announced a Strategic Crypto Reserve that seems to have no other function but enriching insiders and ripping off ordinary people. The pump part of the pump-and-dump began minutes after Trump’s announcement, without the reserve even buying crypto yet. The top five proposed holdings in the Strategic Reserve happen to be the top five holdings at the startup Bitwise, whose primary investor is David Sacks, who is also Trump’s crypto czar. The riches will flow even more once the government buys digital assets and props up their price, only to wait for the inevitable sellout and crash.
These are unrelated to stablecoins, though stablecoins facilitate crypto trading. So why on earth would Democrats ignore this market manipulation, which reveals the inherent pattern of insider self-enrichment in crypto, to pass legislation making such future events more likely? Why would they support something deeply sought by Trump insiders and the co-president, at the very time when they’re upending our system of government? “In my view, a vote for such a provision, furthering Musk’s neofascist political and economic ambitions, is a vote against ensuring the U.S. democracy survives,” said Jeff Chester of the Center for Digital Democracy.
While stablecoin regulation has always had some bipartisan appeal, there’s no big secret as to why some Democrats are ignoring the Trump machinations and jumping in on pro-crypto efforts. Whether they’re afraid of industry money taking them out, as happened to Sens. Sherrod Brown (D-OH) and Jon Tester (D-MT) last year, or whether they see an opportunity to take in some of that cash hoard for themselves, they’re blocking out the Trumpian noise and forgoing a very legitimate line of attack.
The $Trump coin and the Strategic Crypto Reserve “are representative of manipulative aspects of crypto as a whole,” Hays said. Democrats supporting the GENIUS Act “should be just as concerned about passing a bill that would give a green light to the same people who are avid participants in the dismantling of sound financial regulation, and would materially benefit from passage of this bill. Including Elon.” In response, Lukaske said, “Providing clear regulations for stablecoins is the best way to protect consumers.”
Hays would prefer regulation making clear that any entity acting like a bank or money market fund should be regulated like one. But even middle-ground approaches like Massad’s have been ignored in favor of the most industry-linked legislation. As Hays put it: “There are ways to solve payment problems without relying on an industry known for predation.”
