[haebom]

This article was written because I suddenly remembered a story I wrote in 2018 to someone working in Singapore. As I also mentioned in the writing, it has a strong conspiratorial nature. However, I personally have such doubts. Currency should fundamentally be exchangeable, but currently Tether and Circle exchange these for dollars and purchase relatively safe short-term government bonds from the US or China, making this arrangement seem natural. However, if they were to face a situation like a bank run or become unable to pay out $1, I think the analogy of a “water faucet” wouldn’t necessarily be incorrect.

[user142]

Stablecoins are quite different from banks. Under the system of fractional-reserve banking, banks by definition only have reserves for a fraction of their user's balances. Stablecoins are meant to be fully backed and the issuers claim to be fully backed. In theory it is possible that the issuers are lying but in practice this seems unlikely. Running a stablecoin business seems to be a relatively inexpensive operation compared to the amount of money you can make by investing your reserves into short term treasuries in the current interest rate environment. Even if Tether wasn't fully backed in 2018 they should have made billions in profits since off interest rates and recovered their losses.

I still don't understand your argument how the GENIUS Act would turn off the 'faucet'. Legalizing and legitimizing stablecoins would presumably lead to more stablecoin issuance instead of a bank run.