by Joe Herrle, CFA
Vice President
Alternative Assets and Portfolio Management
At Ferguson Wellman, the alternative assets desk (my primary role) tends to be where the uncommon client questions land. Alternative assets, in our world, are basically anything that is not a publicly traded stock or bond, and our clients come to us with terrific questions that often sit in this "other" bucket. These topics range from cryptocurrency and investing in early-stage startups to unique real estate deals and even whiskey barrel investing; if it's on the fringe of finance, there is a good chance it has crossed my desk. Answering and researching these ideas is one of the most enjoyable parts of my job, and over time I've come to think of them collectively as "Fringe Finance" topics. Lately, one Fringe Finance issue has been coming up again and again: stablecoins. So, today’s article is my first foray into shedding some light on a Fringe Finance topic: what stablecoins are, how new rules like the GENIUS Act shape them and why they matter for investors.
Understanding Stablecoins: What You Need to Know in a Regulated Era
For investors curious about cryptocurrency, stablecoins represent one of the more practical and increasingly legitimate use cases in the digital asset space. Unlike Bitcoin or other cryptocurrencies that fluctuate wildly in value, stablecoins are designed to maintain a fixed price, typically pegged to the U.S. dollar. The passage of the GENIUS Act in July 2025 has fundamentally changed how these digital assets operate, introducing the first comprehensive federal regulatory framework and legitimizing what had previously been an opaque corner of the crypto market.
What Exactly Are Stablecoins?
Think of a stablecoin as a digital dollar—an electronic token issued on a blockchain, much like how you now hold stocks and bonds through electronic records in your brokerage account. A properly regulated stablecoin is always designed to equal $1 (when pegged to the dollar), but here's the critical distinction: it is not legal tender and is not issued by the U.S. Treasury or Federal Reserve. Instead, it's a digital token issued by private companies that represents a dollar but isn't itself an actual dollar.
The fundamental difference between a real stablecoin and worthless alternatives comes down to backing. Unlike Monopoly money, a properly regulated stablecoin must be backed 1:1 by safe, liquid assets, typically cash or U.S. Treasuries kept in reserve. This is similar to how a bank operates: you deposit money, the bank issues loans and makes investments, and regulations ensure the bank doesn't take excessive risk to cover withdrawals. The GENIUS Act now codifies these principles, requiring issuers to maintain identifiable reserves. So, for every stablecoin issued, the issuer must own a dollar’s worth of eligible assets, including U.S. currency, deposits at insured institutions, and U.S. Treasury securities.
Who Can Issue Stablecoins Now?
Before the GENIUS Act, anyone with technical knowledge could create a stablecoin for public use. This arrangement opened the door to fraud, as evidenced by the collapse of TerraUSD in 2022. The new law changed that completely. Only regulated entities, such as banks and federally or state-licensed nonbanks, are now allowed to issue stablecoins in the United States. The framework ensures that only entities meeting high standards for reserve management, transparency and anti-money laundering controls can operate in this space.
How the GENIUS Act Creates Transparency and Safety
The GENIUS Act establishes rules to make stablecoins safer and increases transparency in an industry that was previously quite opaque. Stablecoin issuers must now publish detailed monthly reports breaking down the total stablecoins issued and their reserve asset composition. These reports must be examined by registered public accounting firms and submitted monthly to regulators—a level of ongoing transparency unprecedented even for traditional banks.
The GENIUS Act also subjects stablecoin issuers to the Bank Secrecy Act, requiring them to screen customers and transactions, report suspicious activity and maintain detailed records. Blockchain transactions are inherently traceable, allowing agencies to "follow the money" when needed. This is why the illicit appeal of cryptocurrency is diminishing as regulation improves.
Why People Use Stablecoins
People primarily use stablecoins when trading other cryptocurrencies because they settle much faster than USD transactions through traditional banking channels. You can also transact with them 24/7, allowing you to send funds overseas when banks are closed and avoid transfer fees. For international commerce and cryptocurrency traders, stablecoins serve as a practical bridge between traditional finance and the blockchain world.
One notable drawback is that owners cannot earn interest on stablecoins. The GENIUS Act explicitly prohibits issuers from paying interest or yield to holders. This means the only reasons to own stablecoins are to transfer money or to trade other cryptocurrencies—they're a tool, not an investment vehicle. Since Stablecoins don't fluctuate wildly like Bitcoin, they are better suited for transactions and payments. Bitcoin's price swings make it risky for everyday transactions; it's primarily used as a speculative investment. Many global users prefer dollar-pegged stablecoins because the dollar remains the world's reserve currency, making them practical as a digital cash substitute, especially in cross-border finance.
The Strategic Importance
The U.S. government is prioritizing stablecoin regulation because issuers are becoming substantial purchasers of U.S. debt. The two largest stablecoin issuers, Tether and Circle, currently hold approximately $180 billion in U.S. Treasuries, making them the 17th-largest holders of U.S. debt globally, ahead of Germany, Saudi Arabia, and South Korea. By establishing clear regulatory frameworks, the U.S. encourages more institutions to become Treasury purchasers through stablecoin issuance, thereby helping maintain lower government borrowing costs.
Moving Forward
The GENIUS Act represents a watershed moment in American cryptocurrency regulation. For the first time, federal law clearly defines who may issue a stablecoin, how it must be backed, and which regulator provides oversight. For investors, this regulatory clarity means greater assurance about the safety and reliability of stablecoins issued under the new framework.
Takeaways for the Week
Inflation data released this week shows consumer price inflation slowed to about 2.7% as of November 2025, lower than expected. However, the data are somewhat distorted because the Bureau of Labor Statistics could not collect normal survey data during the fall government shutdown, so October figures are missing, and November covers two months: September and November.
We saw updated unemployment data this week, which revealed the unemployment rate was 4.6% for November, up from 4.4% in September and the highest since 2021. Much of the rise in the unemployment rate is due to more people entering the workforce looking for jobs, not necessarily from job losses.