Money & Finance › Currencies, the dollar & crypto › The digital dollar: stablecoins vs. a Fed-issued CBDC
Stablecoins: crypto tokens pegged to a currency
Tether 2014; US law 2025· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
Crypto tokens designed to hold a steady value, usually $1, backed by reserves; regulated in the US by the 2025 GENIUS Act.
See it on the Money & Finance map →How it works
An issuer takes in dollars, holds them in cash and short-term Treasuries, and creates tokens one-for-one. Tether (USDT, from 2014) and Circle's USDC dominate; total supply reached about $300 billion in late 2025. They are used mainly for crypto trading and as dollar savings in weak-currency countries. The GENIUS Act, signed July 18, 2025, requires 1:1 safe reserves, monthly disclosures, licensing and no interest paid to holders. The unbacked 'algorithmic' TerraUSD collapsed in 2022.
Why it matters
They are becoming big buyers of T-bills and a possible rival to bank payments, extending the dollar's reach worldwide.
Facts, rules and data
The GENIUS Act's text, issuers' monthly reserve reports, on-chain supply data, and New York's 2021 settlement with Tether over past reserve claims.
Debates and risks
Whether they will drain deposits from banks, and how offshore issuers like Tether will fit under the new US rules.
Inside this (3)
Connections (13)
▸Payment rails: how money moves from account to account face competition from Stablecoins: crypto tokens pegged to a currencyExperts disagree
The connection
Card networks charge merchants roughly 2–3%, and international wires can take days and cost $25 or more. Stablecoins settle in minutes, around the clock, for cents, between any two digital wallets. That makes them a rival for cross-border payments and business transfers. Banks answer with instant rails like FedNow, while Visa and Stripe have added stablecoin settlement themselves.
When and why
Competition sharpened in 2024–25: Stripe bought stablecoin firm Bridge for about $1.1 billion, and the July 2025 GENIUS Act gave issuers a federal license path.
How solid is the link?
On-chain data show trillions of dollars in stablecoin transfers, but analysts, including Visa's, note most is crypto trading or internal shuffling, not everyday commerce.
Debates and risks
Whether stablecoins win everyday payments or stay in cross-border niches, and how much bank deposit funding shifts to them.
▸Ethereum and smart contracts hosts many Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
Most stablecoins are smart-contract tokens: a program on Ethereum records who owns how many and lets the issuer create ('mint') or destroy ('burn') tokens as dollars come in or go out. Ethereum's lending and trading apps then use them as cash. Roughly half of all stablecoin value sits on Ethereum, with Tron second, mostly for Tether.
When and why
USDC launched on Ethereum in 2018; Tether, begun on a bitcoin-based layer in 2014, moved largely to Ethereum and Tron from 2017 to 2019.
How we know
Public blockchain data and issuers' transparency pages show token supply on each network.
Debates and risks
Whether cheaper, faster networks, or new issuer-run chains such as Circle's Arc and Stripe's Tempo announced in 2025, will draw stablecoins away.
▸Stablecoins: crypto tokens pegged to a currency are backed largely by Treasury bills (T-bills)Fact, law or data
The connection
A dollar stablecoin issuer takes in dollars and promises to redeem each coin for $1. It invests the reserves mostly in short T-bills and Treasury repos and keeps the interest. The GENIUS Act requires 1:1 reserves in cash, insured deposits, bills maturing within 93 days, Treasury repos or government money funds.
When and why
Tether (2014) and Circle's USDC (2018); the GENIUS Act was signed July 18, 2025. Tether alone held more than $100 billion in T-bills in 2025.
How we know
Issuers' published reserve reports and attestations list T-bill holdings; the GENIUS Act text sets the reserve rules.
Debates and risks
Whether stablecoin growth pulls deposits from banks, and whether a run on a big issuer could force a fire sale of T-bills.
▸Stablecoins: crypto tokens pegged to a currency can be licensed by Office of the Comptroller of the Currency (OCC)Fact, law or data
The connection
The GENIUS Act gives stablecoin issuers a federal route: a nonbank issuer can get an OCC license and supervision, bank subsidiaries answer to their bank regulator, and issuers under $10 billion may choose state oversight. In December 2025 the OCC also conditionally approved national trust bank charters for several crypto firms, including Circle and Paxos.
When and why
Washington, July 18, 2025, when President Trump signed the act; regulators had a year to write rules, which take effect by January 2027 at the latest.
How we know
The GENIUS Act's text assigns nonbank licensing to the OCC; OCC press releases and proposed rules document implementation.
Debates and risks
Banks argue stablecoins could drain deposits, especially if exchanges pay holders rewards; how the OCC will treat offshore issuers like Tether is unclear.
▸Central bank digital currencies (CBDCs) compete with Stablecoins: crypto tokens pegged to a currencyExperts disagree
The connection
Both put money on digital rails. A CBDC is a claim on the central bank; a stablecoin is a claim on a private issuer holding reserves. The US barred work on a retail CBDC in January 2025 and backed private stablecoins through the GENIUS Act; Europe pursues a digital euro partly to avoid dependence on dollar stablecoins.
When and why
US executive order of January 23, 2025; GENIUS Act, July 2025; ECB officials' 2025 warnings that dollar stablecoins could weaken Europe's monetary control.
How solid is the link?
The executive order's text, and ECB speeches and blog posts presenting the digital euro as a counterweight to dollar stablecoins.
Debates and risks
Whether public CBDCs or private stablecoins win, or whether banks' own 'tokenized deposits' make both less necessary.
▸Instant payments: 24/7 bank transfers that settle in seconds compete on speed with Stablecoins: crypto tokens pegged to a currencyExperts disagree
The connection
Both settle in seconds, 24/7. Instant payments move insured bank deposits within one country under bank rules; stablecoins move tokens on blockchains, across borders and outside banks, backed by reserves under the GENIUS Act. Backers of each argue theirs will win everyday payments.
When and why
In the US, RTP (2017) and FedNow (2023) versus stablecoins such as USDC; the GENIUS Act was signed July 18, 2025.
How solid is the link?
Volume data from the Fed, The Clearing House and on-chain trackers show most stablecoin use is still crypto trading.
Debates and risks
Whether stablecoins can win domestic payments where fast bank rails already exist is debated; in Brazil and India, so far, they largely have not.
▸Payment processors and acquirers: Stripe, Square, Fiserv are adding settlement in Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
Processors are adding stablecoins as another way to move merchants' money. Stripe bought the stablecoin firm Bridge for about $1.1 billion (closed February 2025) and lets merchants accept USDC; Visa settles some card transactions in USDC; Fiserv announced its own bank-network token, FIUSD, in 2025. The GENIUS Act's 2025 rules gave them firmer legal footing.
When and why
Mostly 2024–2026, led by Stripe, Visa, Fiserv and others, around and after the GENIUS Act's signing on July 18, 2025.
How we know
Company announcements and filings, Stripe's annual letters, and Visa's published stablecoin settlement figures.
Debates and risks
Whether shoppers will use stablecoins for everyday purchases, or whether they mainly serve cross-border payouts and corporate treasury.
▸Remittances and the 1% US remittance tax (2026) are a growing use for Stablecoins: crypto tokens pegged to a currencyMainstream view
The connection
A sender buys a dollar stablecoin such as USDT or USDC in an app and sends it to the recipient's wallet in minutes; the recipient holds the dollars or sells them for local currency through an exchange or agent. Where currencies are weak or banks costly, this can beat a transfer company, though cash-out fees can erase the gap.
When and why
Strongest in Latin America, the Philippines, Nigeria and Turkey in the 2020s; MoneyGram has offered USDC-based transfers since 2022.
How solid is the link?
Chainalysis crypto-adoption reports, transfer companies' announcements, and central-bank and IMF studies of stablecoin flows; precise remittance shares are estimates.
Debates and risks
How large the stablecoin share of remittances really is, and whether it undermines local currencies and capital controls, as some central banks fear.
▸The digital dollar: stablecoins vs. a Fed-issued CBDC is mostly being built as Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
With a Fed CBDC ruled out, the digital dollar in practice means private stablecoins: tokens such as USDT and USDC, backed by cash and T-bills, moving on public blockchains around the clock. The GENIUS Act makes them the official US route, with banks' tokenized deposits as a second track.
When and why
Since Tether in 2014; made official US policy by the January 2025 executive order and the July 2025 law.
How we know
Trackers such as DefiLlama show about 99% of stablecoin supply is pegged to the dollar; US law now regulates them as payment instruments.
Debates and risks
Whether stablecoins or tokenized bank deposits will win for business payments, and how the two will interoperate.
▸GENIUS Act (2025): the federal law for payment stablecoins created federal rules for Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
Before the law, stablecoins fell under a patchwork of state money-transmitter licenses and New York trust charters, with SEC and CFTC claims disputed. The act defines a 'payment stablecoin', requires licensing, 1:1 reserves, monthly disclosure and redemption rights, bans interest to holders, and declares such tokens neither securities nor commodities.
When and why
Congress, June–July 2025; signed July 18, 2025; effective by January 18, 2027 at the latest.
How we know
The statute's text and the agencies' 2026 proposed implementing rules.
Debates and risks
Whether 'rewards' paid by exchanges rather than issuers will undercut the interest ban; Congress is still fighting over it.
▸Executive order barring a US CBDC (Jan 23, 2025) promotes dollar-backed Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
The same order made it US policy to promote 'lawful and legitimate dollar-backed stablecoins worldwide'. It set up a working group to propose a federal framework for digital assets, including stablecoins, which fed into the GENIUS Act signed six months later.
When and why
January 23, 2025; the President's Working Group delivered its report on July 30, 2025.
How we know
The order's text and the Working Group's published report.
Debates and risks
Whether government promotion of private tokens invites conflicts of interest; critics cite the Trump family's stake in World Liberty Financial, issuer of the USD1 stablecoin.
▸CLARITY Act: crypto market-structure bill (not yet law) stalled partly over yield on Stablecoins: crypto tokens pegged to a currencyFact, law or data
The connection
The GENIUS Act bars issuers from paying interest, but exchanges like Coinbase pay 'rewards' on stablecoin balances. Banks fear deposit flight and want that closed. A May 2026 Senate compromise banned yield on idle balances but allowed activity-based rewards; bank groups still objected, and the issue helped sink the September 15 vote.
When and why
Senate negotiations from January to September 2026 among banks, Coinbase and senators including Thom Tillis.
How we know
Senators' statements, including Josh Hawley's and Jerry Moran's after the 49–50 vote, and the compromise text.
Debates and risks
Whether a new deal satisfies banks, and how rewards 'tied to activity' can be told apart from interest.
▸Stablecoins: crypto tokens pegged to a currency offer a 24/7 route for Cross-border payments: moving money between countriesMainstream view
The connection
Instead of a chain of correspondent banks, a sender buys dollar stablecoins, sends them over a blockchain in minutes on any day, and the recipient converts them to local currency or keeps dollars. Network fees can be cents, but cashing in and out, and local rules, add cost and friction.
When and why
Widely used in Latin America, Africa, Turkey and Southeast Asia; the US GENIUS Act of July 2025 set rules for issuers.
How solid is the link?
On-chain data, Chainalysis and BIS reports, and payment firms' disclosures of stablecoin settlement.
Debates and risks
How much stablecoin volume is real payments rather than crypto trading, and how anti-money-laundering rules will apply abroad, is uncertain.