I haven’t been following the development of stablecoins, both before and after the signing into law of the so-called “GENIUS Act”, so I found this paper a must-read: “Stablecoins: A Revolutionary Payment Technology with Financial Risks”, by Rashad Ahmed, James A. Clouse, Fabio Natalucci, Alessandro Rebucci & Geyue Sun, NBER Working Paper No 34475. [ungated version]

The GENIUS Act, recently signed into law, establishes a dual federal and state regulatory framework for stablecoins, effectively segmenting the USD stablecoin market into GENIUS-compliant stablecoins and those that are not. This paper discusses the use cases and potential benefits of stablecoins in terms of payment system efficiency and costs, as well as their substitutability with money market mutual funds and bank deposits. It then analyzes the financial stability risks associated with both GENIUS-compliant and unregulated stablecoins using empirical analysis and historical case studies. It concludes by discussing the economic implications of the emergence of a large dollar stablecoin ecosystem. The discussion is supported by a new survey of expert opinions canvassed through Large Language Model (LLM) analysis of all U.S. podcast episodes on stablecoins from January 20 to July 17, 2025.

Here’s a picture of stablecoin capitalization:

Notes: The left-panel plots the market capitalization of USD-pegged stablecoins. USDT and USDC are the tickers of stablecoins issued by Tether and Circle, respectively. ‘Other’ includes ten other USD stablecoins (TUSD, BUSD, FDUSD, PYUSD, RLUSD, DAI, FRAX, UST, USDE, USDS). 

Source: Ahmed et al. (2025).

The paper is quite balanced in its assessment of the pluses and minuses of stablecoins. What I thought, when I first heard of stablecoins, was the question: “haven’t we been here before?” Sounds like free banking … and indeed, the paper has this box:

See more on free banking Sanches (2016). A much more optimistic view on free banking is provided by Watts (2025).