Stablecoins have emerged as crypto’s first true killer application, reshaping how value moves across digital economies. With over $160 billion in circulation and growing adoption in both emerging and developed markets, they are no longer fringe experiments—they’re becoming a dominant global settlement infrastructure. From Venezuela to Nigeria, Argentina to Turkey, individuals are turning to stablecoins as a credible alternative to unstable local currencies. At the same time, policymakers and economists are grappling with their implications, offering sharply divergent views on whether stablecoins should be embraced, regulated, or even banned.
This article explores five key perspectives on stablecoins—from critics who see them as dangerous unregulated deposits to proponents who believe they strengthen the U.S. dollar’s global dominance. Each viewpoint reflects deeper ideological and strategic priorities, revealing not just what stablecoins are, but what they might become in the evolving financial landscape.
1. Greyism: Stablecoins Are Unregulated Bank Deposits That Threaten Financial Stability
Legal scholar Rohan Grey represents a principled critique of stablecoins—not because he opposes innovation, but because he sees them as shadow banking in disguise. In his view, stablecoin issuers function like banks: they accept deposits (in the form of fiat), issue liabilities (stablecoins), and invest those funds in interest-bearing assets like U.S. Treasuries. Yet unlike banks, they operate without federal oversight, FDIC insurance, or prudential regulation.
Grey was instrumental in drafting the STABLE Act, a 2020 legislative proposal that would have required all stablecoin issuers to obtain bank charters and submit to supervision by the Federal Reserve and FDIC. While the bill didn’t pass, it highlighted a core regulatory dilemma: if stablecoins perform the economic functions of bank deposits, should they be treated as such?
Grey argues that allowing private entities to issue dollar-denominated liabilities without accountability creates systemic risk. When TerraUSD collapsed in 2022, it wasn’t just a crypto failure—it was a warning about asset-liability mismatches and speculative overreach in an unregulated space. If stablecoins grow large enough to require government bailouts during crises, taxpayers end up footing the bill—making regulation not just prudent, but morally necessary.
👉 Discover how modern financial infrastructure is evolving beyond traditional banking models.
Yet the stablecoin ecosystem has evolved significantly since UST’s collapse. Today, major issuers like Circle (USDC) and PayPal (PYUSD) operate under strict regulatory frameworks—PYUSD, for example, is issued under a New York Trust License with bankruptcy-remote structures that protect user funds. Moreover, third-party rating agencies like S&P, Moody’s, and Bluechip now assess stablecoin risk profiles, increasing transparency for users.
Still, Grey raises a valid concern: financial privacy. He supports individual privacy but distrusts private companies to safeguard it without oversight. His solution? A government-issued digital cash system that mimics physical currency’s anonymity at small scales. But given recent actions against tools like Tornado Cash and Samourai Wallet, trust in state-backed privacy remains low.
The reality is that today’s leading stablecoins are far more transparent and resilient than early iterations. While Grey’s concerns about moral hazard are legitimate, outright bank classification may stifle innovation—especially as narrow banking (holding only safe, liquid assets) becomes more popular across finance.
2. Gorton and Zhangism: Stablecoins Can’t Work Because They Violate Monetary Theory
Economists Gary Gorton and Jeffery Zhang take a different approach: they reject stablecoins not on regulatory grounds, but on theoretical ones. In their widely cited paper Taming Wildcat Stablecoins, they argue that stablecoins resemble the failed "free banking" era of 19th-century America—a time of frequent bank runs and currency instability.
Their central claim hinges on the No Questions Asked (NQA) principle: for something to function as money, it must be accepted without due diligence into its backing. Since users must trust that a stablecoin is fully backed—and can be redeemed at par—it fails NQA and thus cannot serve as reliable money.
But this argument overlooks empirical reality. Today, tens of millions of people use Tether (USDT) and USDC daily without checking balance sheets. Major exchanges, DeFi protocols, and payment platforms treat them as dollar equivalents. Deviations from the $1 peg are rare and quickly arbitraged away. Unlike regional banks during the 2023 crisis—where depositors above FDIC limits faced real uncertainty—top-tier stablecoins have proven resilient.
Moreover, the free banking analogy is flawed. U.S. "free banks" were heavily restricted—they couldn’t branch nationally and were forced to hold risky state bonds. Scotland’s truly free banking system, by contrast, operated stably for over a century. Stablecoins today hold highly liquid, short-duration assets like Treasury bills, avoiding maturity transformation—the root cause of traditional bank fragility.
Gorton and Zhang assume that because a system doesn’t fit classical theory, it can’t succeed. But stablecoins have already succeeded—in practice, if not in academic models.
3. Massadism: Stablecoins Challenge U.S. Sanctions—and Demand Engagement
Former CFTC Chair Timothy Massad offers a pragmatic take: ignore stablecoins at your peril. In his Brookings essay Stablecoins and National Security, he draws a direct parallel between stablecoins and Eurodollars—dollar liabilities created outside the U.S. banking system during the Cold War.
Like Eurodollars, stablecoins emerged from entities seeking to bypass U.S. financial gatekeepers—crypto firms debanked by traditional institutions. Both offer higher yields than onshore alternatives and both reinforce dollar usage globally. But crucially, Eurodollar transactions still clear through U.S. banks, giving Washington leverage via sanctions. Stablecoins, however, can settle peer-to-peer across blockchains—bypassing traditional rails entirely.
Massad isn’t anti-crypto; he recognizes that stablecoins could become a more viable medium for international payments than central bank digital currencies (CBDCs). His concern? That unchecked growth could undermine U.S. sanctions enforcement.
Yet he rejects the “let crypto burn” mentality embraced by some post-FTX. Instead, he urges Congress to regulate stablecoins proactively—ensuring U.S.-based issuers dominate the market and remain accountable to law enforcement.
👉 See how regulated digital asset platforms are shaping the future of cross-border finance.
His vision balances innovation with national interest: encourage responsible issuance while preserving tools to combat illicit flows. As other jurisdictions like Singapore, Dubai, and Japan welcome stablecoin innovation, U.S. inaction risks ceding leadership—and control.
4. Wallerism: Stablecoins Strengthen the Dollar’s Global Role
Federal Reserve Governor Chris Waller presents a counterintuitive insight: far from threatening the dollar, crypto is reinforcing it.
In a 2024 speech, Waller noted that 99% of stablecoin market cap is pegged to the U.S. dollar—and nearly all DeFi activity uses dollar-backed stables as collateral and medium of exchange. This means every transaction on Ethereum or Solana is effectively denominated in dollars.
This trend isn’t accidental. Volatile assets like Bitcoin or Ether are poor units of account for everyday commerce. Stablecoins eliminate exchange rate risk, simplify tax reporting, and reduce friction in remittances and trade. As newer interest-bearing stables emerge—paying yields from Treasury portfolios—the opportunity cost of holding them vanishes.
Waller sees this as good news: even if blockchain technology disrupts traditional finance, it amplifies dollar usage worldwide. But there’s a caveat—this benefit depends on maintaining trust in stablecoin settlement finality. If governments begin freezing transactions en masse, users may flee to bearer assets like Bitcoin.
5. Brooksism: Stablecoins Can Save the Dollar as Global Reserve
Brian Brooks, former Comptroller of the Currency, goes further: stablecoins don’t just support the dollar—they might save it.
With major economies diversifying away from Treasuries and trade increasingly invoiced in non-dollar currencies, the greenback’s reserve status faces real threats. Stablecoins inject fresh demand for U.S. debt—$160 billion in net new exposure held largely by foreign users.
Each USDT or USDC is backed by short-term Treasuries or repos, creating organic demand for government debt without relying on central bank purchases or foreign sovereigns. If stablecoin adoption grows, they could become top holders of T-bills—boosting fiscal sustainability.
Brooks acknowledges concerns about inequality—the dollar reserve system benefits financial elites more than workers—but argues that promoting dollar-based digital assets strengthens U.S. economic influence in a multipolar world.
Who Wins and Who Loses in a Stablecoin-Dominated World?
Winners:
- Individuals in high-inflation economies: Access credible dollar savings outside failing banking systems.
- Global financial hubs outside the U.S.: Jurisdictions like Singapore and Dubai attract capital fleeing U.S. hostility.
- Digital nomads and remote workers: Enjoy portable, low-cost payroll solutions.
- U.S. fiscal policy: Growing demand for Treasuries supports deficit financing.
Losers:
- Weak currency regimes: Face accelerated dollarization and loss of monetary control.
- Traditional banks: Compete with higher-yielding, interest-bearing stablecoins.
- Legacy remittance providers: Outpaced by cheaper crypto-based transfers.
- Sanctions enforcers: Must adapt to decentralized settlement networks.
Frequently Asked Questions
Q: Are stablecoins really backed 1:1 by dollars?
A: Top-tier stablecoins like USDC and PYUSD are fully backed by cash and short-term U.S. Treasuries, with regular attestations from independent auditors.
Q: Can governments freeze stablecoin transactions?
A: Yes—major issuers maintain “freeze and seize” capabilities and comply with court orders and law enforcement requests.
Q: Do stablecoins threaten the U.S. dollar?
A: No—over 99% are pegged to the dollar and increase global demand for U.S. financial assets.
Q: Could stablecoins replace traditional banking?
A: Not entirely—but they accelerate the shift toward narrow banking models where savings are held in low-risk instruments.
Q: Are stablecoins used for illegal activity?
A: Illicit usage exists but is minimal compared to cash or legacy systems—and blockchain transparency makes tracking easier over time.
Q: Will the U.S. ever regulate stablecoins?
A: Likely—bipartisan bills like the GENIUS Act aim to create a clear framework for issuance while preserving innovation.
👉 Explore secure, compliant platforms driving the next generation of digital finance.